Saturday 20 July 2019

Case studies: What the IMF has done

Population: 317,414
Currency: Krona
10-year yield: 7.01pc
Unemployment rate: 7.6pc
S&P rating: BBB

ICELAND called in the IMF two years ago following an unprecedented meltdown in the country's banking system.

Today, the island nation remains mired in problems, with the IMF estimating that 63pc of loans to households and businesses are non-performing.

Last month, about 8,000 Icelanders took to the streets to voice their grievances.

The economy, the world's fifth-richest per capita as recently as 2007, contracted 6.8pc last year and shrank an annual 8.4pc in the second quarter of 2010.

The country's prime minister Johanna Sigurdardottir is trying to protect the 39pc of households that are technically insolvent. The IMF does not want her to force lenders to forgive $2bn (€1.46bn) in mortgage debt but she is still looking at some form of debt-forgiveness.

Her government is also pushing a bill that will allow bankrupts to walk away from their debts after two years.

It also presented a foreign-lending bill that will reduce each household's debt burden by $13,500 (€9,870), leaving lenders liable.

She extended by five months a moratorium on foreclosures, breaching the IMF agreement.


Population: 10m

Currency: Forint

10-year yield: 7.01pc

Unemployment rate: 11.4pc

S&P rating: BBB-

HUNGARY received a bailout in 2008 to prevent default.

Recently, the country has ended special corporate taxes in an effort to bring down the deficit through 2012 and introduced a flat personal-income tax rate.

The country's prime minister, Viktor Orban, has also imposed a three-year tax regime on the financial, energy, telecommunications and retail industries.

The European Union country will cut as many as 30,000 public sector jobs next year to help cut the fiscal gap to 2.94pc of GDP from 3.8pc this year, and will use revenue from private pension savings to reduce the country's debt.

The government has taken a red pen to pensions and has stopped paying into private funds until the end of next year at least.

It also pledged in September to narrow the gap to 3.8pc of GDP this year and below 3pc in 2011, abandoning a fight with the IMF and EU over the same targets.

Hungary plans to use new taxes to finance a reduction in the personal-income tax rate to 16pc, a move designed to help boost growth.


Population: 2.27m

Currency: The Lat

10-year yield: 5.12pc

Unemployment: 15pc

S&P rating: BB+

LATVIA turned to a group led by the IMF and the European Union for a €7.5bn loan in 2008 after its second-biggest bank failed.

Latvia's programme would be like an Irish programme; the country is keeping its exchange rate fixed to the euro, while letting wages and prices fall to restore competitiveness.

The economy expanded 2.7pc in the third quarter for the first time since the Baltic state followed the European Union's toughest austerity measures. The economy is recovering after shrinking about 25pc through nine quarters of decline.

Yarkin Cebeci, an economist at JPMorgan Chase, estimates that growth next year may reach 3pc as industrial production expands 20pc. Standard & Poor's and Fitch Ratings, which cut Latvia's credit rating to junk in 2009, raised their outlooks to stable this year. Moody's Investors Service, which rates Latvia Baa3, its lowest grade, also raised its outlook to stable.

Latvia is still making cuts as it battles to bring its budget deficit down to 6pc of GDP next year. Lawmakers already approved austerity measures equal to about 14pc of economic output since the IMF and EU bailout.


Population: 11.2m

Currency: Euro

10-year yield: 11.2pc

Unemployment: 12.2pc

S&P: BB+

THE only eurozone country that has had to call on the IMF for help, Greece activated a €110bn package of loans from the EU and IMF in May to bail out the country.

Ireland would probably use the same mechanism if leaders here turned overseas for help.

Prime Minister George Papandreou has since cut wages and pensions and raised taxes on fuel, tobacco and alcohol, but the measures have sparked massive protests.

He came to power a year earlier with promises to raise salaries and cut taxes.

The Greeks may have been unhappy but the markets liked the cutbacks and the spread on Greek 10-year bonds, and German bonds of the same maturity narrowed to 649 basis in early October -- close to Irish levels -- but jumped again after Mr Papandreou suggested he might call elections just 18 months after the previous elections because his political support was dwindling.

Other cutbacks planned include the merger of 1,034 local municipalities into 325, and the replacement of 67 regional and prefectures with 13 more powerful regional authorities.

Irish Independent

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