Transcript Status Report

The Icelandic
Economic Situation
Status Report
1
Published on August 10th 2011
Iceland
Currency:
Krona (ISK)
Language:
Icelandic
Population:
320,000
Capital:
Reykjavík
2
Size:
100,000 km2
Part A
The Financial Crisis
3
system relative
Very large banking
In 2008, the banking
sector
had become gigantic ...
to Icelandic economy
Trillion ISK, Q1 2008
14,4
13
11x
.
1,3
Assets of the Liabilities of the Icelandic GDP
three banks
three banks
... with assets of the “big 3” banks 11 times Iceland’s GDP
4
Then, in October 2008, the “big 3” failed in 3 days
7 October 2008
Landsbanki fails
8 October 2008
Glitnir fails
9 October 2008
Kaupthing fails
5
The financial crisis became a currency crisis ...
Exchange rate for one Euro
Bank collapse
Capital restrictions imposed
6
... and the capital markets evaporated
OMX Iceland 15 Index
Performance, 1998-2008
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
7
Political instability followed ...
... and the first left-wing
government in over 30 years
was elected
8
The failed banks were split into “old” and “new” banks ...
... with Icelandic operations transfered to “new” banks
and international operations staying in the “old” banks
9
In addition to the “old” banks, a part of the “new”
banks was placed in ownership of creditors
Creditors of
Landsbanki Íslands hf
Creditors of Kaupthing
Bank hf
Creditors of Glitnir
bank hf
Kaupthing bank hf*
Glitnir bank hf*
Landsbanki Íslands
hf*
Resolution Committee
Resolution Committee
Resolution Committee
S
The FSA appoints the resolution committees
Landsbankinn
(formerly NBI)
19%
81%
Arion bank
87%
13%
Icelandic State Financial
Investments
Manages the state’s holdings
Source: Vilhjalmur Thorsteinsson
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Íslandsbanki
95%
5%
*) Old banks, in
resolution process
The government also entered an IMF programme
to reduce the fiscal deficit
24 October 2008
The Icelandic government
reaches an agreement with the
IMF on a stabilization program,
including a $2.1 bn loan
16 April 2010
IMF's Executive Board approves
the 2nd review of the Economic
Recovery Program
28 October 2009
IMF's Executive Board approves
the 1st review of the Economic
Recovery Program
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29 April 2010
IMF's Executive Board approves
the 3rd review of the Economic
Recovery Program
11 January 2011
IMF's Executive Board approves
the 4th review of the Economic
Recovery Program
31 August 2011
Scheduled end of the Economic
Recovery Program. A 6th and
final review will be published
before the end of the program.
3 June 2011
IMF's Executive Board approves
the 5th review of the Economic
Recovery Program
Part B
The Current Landscape
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Iceland went into a recession ...
Real GDP, 2009 prices
Net public debt, % of GDP
bn. ISK
1800
1600
1400
Prediction
1200
1000
800
1991 1996 2001 2006 2011
year
Sources: Statistics Iceland; Iceland Chamber of Commerce calculations
... and public debt surged
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However, Iceland’s debt is manageable ...
Net public debt (% of
GDP)
-25%
0%
25%
50%
75%
100%
Greece
United States
Portugal
Total OECD
United Kingdom
Iceland
Switzerland
Denmark
Sweden
Source:
OECD
... and Iceland has not defaulted on any loans
14
Homes struggle with
higher unemployment ...
Statistics Iceland’s Standard of Life survey
... and a lower living standard
15
Inflation reached 17% when the currency
collapsed...
... but has stabilized again
16
Despite the recession, Iceland still remains
competitive compared to other economies
Iceland
Media Freedom (Freedom…
Gender Equality (WEF)
Innovation (INSEAD)
Democracy (Economist)
Innovation (BCG)
Lack of Corruption (Trans.…
International Business (WEF)
Ease of Doing Business (WB)
Property Rights (IPRI)
Human Development (UN)
Economic Freedom…
E-governance (UN)
Competitiveness (IMD)
Competitiveness (WEF)
Globalization (KOF)
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No. of countries
1
1
1
2
4
Iceland in 2007
196
134
132
167
110
11
11
15
16
17
18
21
30
58
31
40
178
125
183
125
169
177
191
139
181
Part C
Recent Developments
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Debt restructuring of …
... households and
corporations is
ongoing…
… and initiatives by the banks and the
government have been put in place to
speed up the process
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One of the failed banks operated the online
savings bank Icesave in the UK and Netherlands
The UK and Dutch governments demanded an
Icelandic state guarantee to reimburse the deposits
20
An agreement was reached three times
I
Agreement
between all
governements
Icelandic
Parliament
Approval
II
Agreement
between all
governements
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Signing of the
President of
Iceland
Approval in a
National
Referendum
Approval of
UK and Dutch
governments
Approval in a
National
Referendum
Approval of
UK and Dutch
governments
Approval in a
National
Referendum
Approval of
UK and Dutch
governments
(Sep ‘09 – Mar ’10)
Icelandic
Parliament
Approval
III
Agreement
between all
governements
(Jun ‘09 – Sep ’09)
Signing of the
President of
Iceland
(Feb ‘11 – Apr ’11)
Icelandic
Parliament
Approval
Signing of the
President of
Iceland
Icesave aftermath
After Icesave III was rejected, the matter is now
with the EFTA Supervisory Authority (ESA)
It is estimated that the UK and Dutch governments
will receive approximately 94% of their claim from
the estate of the failed Landsbanki
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Iceland’s current credit ratings
Investment
Grade
Aaa, Aaa1, Aaa2, Aaa3
Aa, Aa1, Aa2, Aa3
A, A1, A2, A3
Baa, Baa1, Baa2, Baa3
AAA, AAA-, AA+
AA, AA-, A+
A, A-, BBB+
BBB, BBB-, BB+
AAA, AAAAA+, AA, AAA+, A, A-,
BBB+, BBB, BBB-
Speculative
Grade
Ba, Ba1, Ba2, Ba3
B, B1, B2, B3
Caa, Caa1, Caa2, Caa3
Ca, Ca1, Ca2, Ca3
C
BB, BB-, B+
B, B-, CCC+
CCC, CCC-, CC+
CC,CC-, C+
C
BB+, BB, BBB+, B, BCCC+, CCC, CCCCC+, CC, CCC+, C
Outlook
Negative
Negative
Stable
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Since the crisis, the Central Bank
has lowered interest rates ...
... and Iceland’s CDS spread is decreasing
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The Central Bank has introduced a plan to
remove capital restrictions in two phases:
Phase I
Phase II
Reduction of
offshore ISK positions
Removal of
onshore ISK controls
the plan will be complete at the latest
by the end of 2015
25
The IMF fiscal consolidation program
has reduced the deficit...
... and a budget surplus is projected in 2013
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Despite a deep recession ...
8
Real GDP change (%)
6
4
2
0
-2
-4
-6
-8
-10
2007
2008
2009
Norway
Iceland
UK
Ireland
Greece
2010
2011
... Iceland has recovered relatively quickly
27
Iceland has applied for membership of the EU …
… and formal negotiations started in June 2011
28
Other notable events
An investigative committee
released a report on the
causes of the collapse ...
Image source: Flickr user fridgeirsson
... and volcanic eruptions
in 2010 and 2011 disrupted
flights around the world
29
Other notable events
In 2011, a three year wage
contract was signed for the
bulk of Iceland’s workers ...
... and in 2010,
a constitutional assembly
was elected to reform the
constitution
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Other notable events
In May 2011, another volcanic eruption disturbed flights in
Iceland, the UK, Scandinavia and Germany…
Images from www.visir.is
… but the eruption is now over and nobody was harmed.
The impact of the eruption on daily lives was minor
outside area close to the volcano.
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Despite the crisis, Iceland’s future
is bright
• An educated workforce
• Natural resources in abundance
• Innovative and competitive businesses
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The full report
with further details
is available at
chamber.is/statusreport
A mailing list
is available at
chamber.is/mailinglist
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