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More loans the “kiss of death” for Iceland

Well, it’s Sunday, and Sunday means Silfur Egils.*

There were four guests today, all with fascinating things to say [as usual]. I won’t get into specifics of the first three, but rather talk briefly about the fourth, Alex Jurshevski, a specialist in debt management who apparently is here to speak to the Icelandic government about his ideas for the economic restructuring of this land. Jurshevski is with a firm called Recovery Partners who, among other things, offer “Financial and Risk Management Advisory services concerning Sovereign Debt Management Operations, investee companies, acquisition targets, loan obligors or financial asset portfolios,” — according to their website.

Mr Jurshevski is clearly very well informed about Iceland’s current position. He also has some strong views and does not mince words. For example, he feels that Iceland should under no circumstances take more loans — that this would constitute the “kiss of death” for this country. Moreover he claims that the loans Iceland is taking from the IMF and Nordic countries are not intended to be used to build up the infrastructure of this society but rather to pay the owners of glacier bonds — foreign investors who bought those bonds prior to the collapse and who have not been able to sell them due to the present currency restrictions. In other words, money is being taken from the financially weak [us, the plebs] to pay the financially strong. IMF as debt collector, redux.

The interview on Silfur Egils with Mr Jurshevski is available here on the RÚV website, but may be taken down in two weeks’ time. It is also available on Lára Hanna’s blog — scroll down to the third interview on the page. Strongly recommended for anyone following Icelandic affairs.

I would also like to call attention to a blog post on the Recovery Partners site that is more or less in line with Mr Jurshevski’s proclamations in the interview, but which was written prior to the Icesave referendum. As far as I know it has not received much attention here, but it presents some familiar issues in a newlight. To wit:

The UK has warned that Iceland faces economic isolation if they do not approve the [Icesave] package as negotiated. The sub text here is: “If you do not do as we say we will try and make this happen to you.” The reality is that the UK has massive problems of its own, is effectively bankrupt and in need of outside assistance itself. Iceland has abundant natural endowments, exports that the world wants and earns significant revenues from the tourism business. Are the Brits going to interdict fly fisherman and nature lovers when they try to visit Iceland? Are they going to stop shipments of fish from landing in the local  supermarket in Oslo? We think not. Iceland is perhaps the best placed economy to push ahead on its own. It can feed itself, build and heat its own homes and earns enough net export revenues to buy the little fossil fuels that it needs.

Read the entire blog post here.

* For anyone who does not know, Silfur Egils is a talk show that dissects current affairs and watched by a large portion of the Icelandic populace.



Comments on this entry are closed.

  • gloria March 15, 2010, 12:14 am

    “The UK has warned that Iceland faces economic isolation if they do not approve the [Icesave] package as negotiated. The sub text here is: “If you do not do as we say we will try and make this happen to you.” ”

    Hello????!!!!! Have we not known all along that this is the stance of the Brits? They are about to go defunt, the Dutch have already gone defunct, and they need a scapegoat. Iceland is an easy target, a far too easy target. Please be aware: when in the past have European countries needed an easy target to blame, pick on, and punish? Yikes! It’s called diversion. Robbers do it. Create a diversion over here, and pick the pockets over there while the people are looking at the diversion.

    Good luck. i’m on your side.

  • Tom Thumb March 15, 2010, 12:29 am

    The “Recovery Partners” position paper on the Referendum was ‘cool’ and spunky. They were right about how a ‘No’ vote would not affect credit ratings and would instead lower debt-to-GDP ratios. I liked how they were up-front about how this debt could be used by creditors of all stripes to exploit Iceland’s sovereign resources. Three to six years of cleaning up the ‘mess’ is not a long time. If the whole truth of how the meltdown happened and of who did it could just get out and be examined, perhaps Icelanders will find ways to solve these problems without foreign interference.

  • Jón Frímann March 15, 2010, 12:30 am

    This man you speak of has the job of buying debt, then try to sell it when he is finished with it. So you can be sure that he has intrest in seeing Iceland bankrupt.

  • Peter - London March 15, 2010, 1:21 am

    “The sub text here is: “If you do not do as we say we will try and make this happen to you.”

    Or thats exactly what will happen to Iceland. The UK has no power to impose anything but you can be very sure that Iceland will not be a place to invest for a decade or more. Iceland needs to borrow; it isn’t a bonanza of bountiful resources that the world is desperate to get hold of; if it was then it would not have so desperate for a banking industry.

    “The reality is that the UK has massive problems of its own, ”

    What difference does that make? is it less likely to demand repayment of the Icesave debt?

  • Andrew (the other one) March 15, 2010, 4:07 am

    Mr. Jurshevski is making a sales pitch for his firm. Treat it as such. Is it a miracle cure? Maybe he can help… But I assume that his services don’t come cheap.

    By the way, the blog entry is incorrect about one thing: the UK and Netherlands are not trying to recover the total cost of the Icesave fiasco, only the amount specified to be covered in the European finance directive.

  • Andrew (the other one) March 15, 2010, 4:58 am

    This from the Ottawa Citizen newspaper.

    Viewer discretion is advised, as the TV companies have to say over here 🙂


  • Bromley86 March 15, 2010, 8:08 am

    He might be spot-on, or he might be happy to misstate the position to sell his services. Unless there’s a detailed breakdown of what the government intends to do with the IMF-led loan, there’s no way of knowing.

    One thing though. There were a lot of inaccuracies in that blog post. Some were relatively minor and didn’t take away from the core message, but some were pretty critical.

    For example, in the interview he says that when you’re planning, you should consider the worst-case scenario. Sensible, and perhaps that explains why there’s no consideration of the assets in Landsbanki. However, if you’re considering the worst-case scenario, it is absolutely, entirely wrong to say “There is absolutely no legal . . . obligation to pay off the claims lodged by the UK and the Netherlands.”

    What happens to the plan if a court dumps 4bn euros of immediately-payable debt on your plate?

    I always liked Physchim’s solution to the Glacier bond problem. Decide how much you can afford to spend and then offer it up in a currency auction. Let the bondholders bid against each other for that set amount of money to create an effective exchange rate that is massively in Iceland’s favour.

  • James Wilde March 15, 2010, 8:10 am

    Well, I’m not sure, Alda, with great respect. Admittedly I have not yet seen the SilfurEgils interview, but I have read the Recovery Partners’ blog and it is not professional, with spelling mistakes of a nature that do not belong in a company’s interface with potential customers. And the analysis has more the air of populism than professionalism.

    Amongst other things, the writer indicates that ORG refused to ratify the IceSave deal for reasons which would put him in line for a Nobel Prize in economics whereas the reality was the 20% or more of citizens who petitioned him not to sign.

    The blog also translates the referendum into a vote not to repay the Brits and Dutch at all, which is also not the case. This translation supports the blogger’s main thesis that Iceland _shouldn’t_ repay the Brits and the Dutch purely from the point of view that doing so would place their economy in a risky situation. To be sure, I support this thesis also, but from the point of view that the very legality of the British and Dutch claim is extremely questionable and that the original agreement of the Haarde regime was a simple case of cowardice.

    My overall impression is that in other circumstances this company would be called an ambulance chaser (for those who may not understand this term, it is a derogatory term for lawyers encourage accident victims to sue others for allegedly causing their accident and take a large cut of eventual payouts as their fee).

  • Michael Schulz March 15, 2010, 8:20 am

    Sorry, but this is dumb and dull talk by Mr. Jurshevski/writings by Recovery Partners. Is he marketing himself for a job with his utter nonsense talk ? Poor marketing. Hope nobody will pay him a single ISK as it would add to our debt.
    Cheers, M.

  • goupil March 15, 2010, 8:44 am

    Hear, hear.
    The big problem seems to be how to roll over or payback existing loans, IMHO

  • Eliza March 15, 2010, 9:04 am

    The pool of “debt restructuring experts” wishing to make themselves some publicity and hopefully be hired by the Icelandic government for some hefty sum is nearly infinite.
    The choice for Iceland is rather clear cut, to pay or not to pay. It has to be made once and for all. All those months (years ?) of procrastination are just plain painful.
    After the Icelandic Sagas, I sense a new literary genre emerging, the Icelandic Jeremiads – but is it really a new genre ?

  • Michael Lewis March 15, 2010, 9:07 am

    The man is spot on. It doesn’t take a genius to note (as half a dozen posters to this blog have done) that Iceland has natural resources, doesn’t need the EU making things worse and should wave two fingers up at Gordon Brown (I resist the tempation to make a comment about the man)

  • FF March 15, 2010, 10:01 am

    Alda, I have been lurking on your excellent blog for a while. I think it’s worth saying something about Alex Jurshevski, as he’s not an uninterested party. His business is to buy up distressed assets and sell them on at a profit and he potentially stands to make a lot of money if Iceland defaults. Which is not to say he’s wrong, but it would be worth getting advice from someone more independent.

    http://www.canadianencyclopedia.ca/index.cfm?PgNm=TCE&Params=M1ARTM0013135 explains his business practices:

    “In short, these are the scavengers of the capitalist eco-system, a kettle of vultures circling the corporate carrion below. And the smell of blood is long overdue. Low interest rates and a flood of cash have helped many troubled companies skirt certain demise in recent years, which has led to an era of record low defaults and put a strain on the entire [Corporate Vulture] sector. “The whole industry has been depressed because of the default rate,” says Jurshevski…

    “The deluge of easy money is largely what’s kept Recovery Partners on the sidelines. Defaults, which are triggered when companies fail to make debt repayments or break the terms of their loan contracts, have hovered around zero for the last three years. In a typical year, default rates on corporate loans and bonds can be anywhere from three per cent to 10 per cent or even higher. Even the riskiest of loans have handily dodged insolvency until now. That’s because companies struggling with their debt have found a steady stream of investment funds willing to give them ever more money. “On the one hand nobody is going bankrupt and nobody’s getting thrown out of work,” says Jurshevski. “But it also means there may be a lot of people lending money on non-economic terms and that means firms that shouldn’t be surviving are being kept afloat by cheap credit.”

  • Michael Lewis March 15, 2010, 10:02 am

    @gloria: “Brits? They are about to go defunt, the Dutch have already gone defunct, and they need a scapegoat”

    Wrong, whilst the country is in a mess. We don’t actually need a scapegoat. One of the ridiculous things about Icesave is that its a rounding error amount when compared to the billions sunk into (or liabilities on) RBS, Lloyds/HBOS, Northern Rock et al…

  • alda March 15, 2010, 10:11 am

    Yes, it is evident that Jurshevski is here to pitch his services — he said as much in the interview. It doesn’t change the fact, though, that he is very astute when it comes to pointing out the failures and shortcomings of the Icelandic system.

    For those who read the blog post and did not listen to the interview, they are quite different. The interview does not focus on Icesave except to point out the necessity of getting a better deal. It does focus on various other factors, including the risk of taking more loans and using borrowed money to prop up a currency, and the inexperience of the Icelandic government in managing debt. In fact, one of the things I thought was interesting is that he talks about Icelanders’ propensity for taking loans to solve all problems — which is a very Icelandic trait, at all levels of society.

    UPDATE – I had not seen FF’s comment, above, before I wrote this. Thanks for the link and BTW thanks everyone for the discussion. As always, it is invaluable to have all the facts.

  • sylvia hikins March 15, 2010, 10:19 am

    You know the old saying -‘beware of Greeks bearing gifts’! I’ve just had a look at this guys website -oh dear, it’s a bit of a joke. A company of 6 men who make their money from debt management. I had a look at Silfur Egils last night and although I couldn’t follow the language, I could follow the style. I’m sure his show is compulsive viewing but those being interviewed seemed to have an open mike and their views go mainly unchallenged. All a bit suspect.
    Micheal Lewis: Iceland’s natural resources. You overstate the case. Yes there are fish. But Iceland cannot easily feed itself (only 1% of the land is fertile enough to grow crops and it’s a very short growing season). There may be lots of thermal energy but just how will it be exported? Anyway, there are big developments for other kinds of alternative energy resources in mainland Europe- huge solar farms in Spain, tidal and wind energy, and nuclear. And thermal energy. Near where I live there are houses being heated by thermal energy installed by the local authority. Whether Iceland needs to be in the EU needs to be carefully thought out by Icelanders, not by politically biased outsiders. But Iceland does need to be part of the world economy and to restore trust so that business and capital will flow again. Isolationism is not the answer.
    sylvia from viking wirral

  • Tom Thumb March 15, 2010, 10:28 am

    @Bromley86. I was wondering what you thought of the Recovery Partners’ piece. Thanks for the ‘currency controls’ idea/solution of the bond problem. What are your ideas for strengthening the ISK?
    I stumbled upon this article (old news actually) and wanted to share its humor about Inter…..stellar…..kredits!
    http://www.thefreelibrary.com/Starship salvation: Icelandic currency in space-a0210519853

  • Michael Lewis March 15, 2010, 11:17 am

    @ sylvia
    I’m not talking about cod! There are lots of natural resources beyond fish 😉 If you have access to energy resources then you can locate your production close to the source and ship the completed product. As an example: data centers.

    “Europe- huge solar farms in Spain”
    Many of which make no money and are almost bust (article in either the FT or moneyweek about that two weeks ago).

  • Bromley86 March 15, 2010, 1:13 pm

    What are your ideas for strengthening the ISK?

    Clueless, I’m afraid. I’ve managed to forget just about everything from my Economics degree. But if the options are long-term currency controls or more debt and possible default, a third way like Physchim’s seems sensible to me. Kind of a mini-default.

  • sylvia hikins March 15, 2010, 2:11 pm

    Michael: Or aluminium, smelters? No easy answers here. And all of this will need big inputs of capital.
    I don’t know if the solar farms in Spain are going bust. I drove across Spain last summer and they were still building them. I was anyway meaning future energy needs and making the point that there are many other sources of energy about to be developed and in the pipeline for mainland Europe.

  • John March 15, 2010, 2:58 pm

    The man Mr Jurshevski needs to sit down and have a drink with on Iceland, is the Icelandic President, since he could veto every bill to pay back the money owned

  • Peter - London March 15, 2010, 3:14 pm

    Michael Lewis
    “There are lots of natural resources beyond fish 😉 If you have access to energy resources then you can locate your production close to the source and ship the completed product. As an example: data centers. ”

    This has already been done to death; how many data centrers are there in Iceland? Not many.
    As for Geothermal, the only way to export it is in aluminium and in absolute terms Iceland isn’t a particular big generator of geothermal never mind renewable energy. UK produces several times as much wind power as Iceland does geothermal and it will soon be producing 10-20 times as much and many other EU countries produce large amounts of renewable energy and its increasing rapidly.
    Iceland resources are fish (farming is going to be more economical than catching it in the future) and Oil (the potential reserves are at least a decade away, possible never economical access-able).

    I’m at a loss to think exactly what is so rich about Iceland resources that anyone would be a particularly interest in them and Icelanders themselves found banking much more profitable.

  • Marc March 15, 2010, 4:30 pm

    @ Peter in London
    Any country has export resources, provided they sell them at a low enough price. As countries have found out (USA) and as other countries will no doubt find out sooner or later (Germany, Japan, China,…) there is no way one country can be a net export country for eternity. Iceland is lucky enough to have a resource that is currently in high demand (a highly educated workforce). That should ease the recovery.

  • Michael Lewis March 15, 2010, 4:47 pm

    “I drove across Spain last summer and they were still building them”

    Still a subsidised industry in spain (over 40% of installs last year) and can’t compete with coal ($2 per watt). Albeit it is more environmentally friendly. Spain has just cut the subsidy as it can’t afford it (at least to the level it was paying). So there will be shake-out in the industry and some will go bust, the survivors will be in a much better position in the end. Solar relies on the cost of silicon being very low.

  • Easy March 15, 2010, 6:03 pm

    Well, this is exactly what I have been saying, for the last year, about the reall situation of Iceland, about not having prepared people to deal with this, and make decisions, about that there is nothing that will stop the krona from falling down, and about the only solution for Iceland is defoult, about the money from IMF would be for the forign investors not to rebuilt the country about People not realizing the dimention of the situation, and not talking about it. Now, I think it’s a cultural thing, in this country, beeing bankrupt or in the “black list” is something socialy terrible, more than in most countries(we are so few), so the fact that the conuntry has ran into exactly that is something very difficult to accept as a nation, and we have decided to close our eyes and ears so we dont have to see it, I just hope that people start accepting it and off course the goberment too, (beeng bankrupt hapens its not the end of the world)so we can start applying measures(austerity the ONLY medicine) and start rebuilding this country.

  • Sebastian March 15, 2010, 7:08 pm

    @Peter – London:
    Iceland isn’t a particular big generator of geothermal never mind renewable energy. UK produces several times as much wind power as Iceland does geothermal and it will soon be producing 10-20 times as much

    Electricity production in 2008:
    UK (wind): 7.1 TWh
    Iceland: 16.5 TWh (12+ TWh hydro and 4+ TWh geothermal)

    UK must increase the electricity production by more than 700% to achieve the same per capita production as Iceland. To get the same renewables production, UK must increase the production by more than 100 times. And let us not forget that hydro and geothermal are superior to wind.

  • Sebastian March 15, 2010, 8:07 pm

    Btw, great interview with Alex Jurshevski! Although I think he had inconsistent reasoning a couple times, the arguments and recommendations were overall very good.

    Do Icelanders in general think the IMF/Nordics loans should be used to build up the infrastructure? If so, what kind of projects?

    I’ve always assumed the loans were needed to roll over debt and maintain foreign currency reserves. To rebuild the banking system could possibly fit the infrastructure category, but building new roads or finish the Opera building is not the kind of austerity measures required to bring down the huge budget deficit.

  • Marc March 15, 2010, 10:01 pm

    The IMF never lends money to start infrastructure projects. The whole mission of the IMF is to serve as a lender of last resort. By definition that means the institution you can go to to borrow the funds you owe to other creditors when they say “No More!”.

    After that initial phase of bailing out other creditors a country is faced with economic policy compliance demands, ie privatising everything but the army and focusing on spending less than your income.

    The IMF is not the way to economic prosperity, but without it and without (partial) alternatives iceland will suffer a sharp economic shock. To be honest, the budget deficit should not be the primary concern of the icelandic government (though the concern about it is useful to check and doublecheck the added value of expenditures). The primary concern should be te restore confidence & pride amonst its citizens. Appropriate punishment for the fraudsters goes a long way to achieve this.

    In the best of all possible scenario’s Iceland should make the UK and Holland partners in its recovery (share the burden/share the upside). If they were to assist Iceland in building a proper regulatory oversight and offer to invest in the icelandic economy the mess they’re in right now could vanish like the morning fog on a clear summer’s day.

  • Erlendur March 15, 2010, 10:08 pm

    Well I must say that my assumption is the same as Sebastian, i.e. the loans are for rolling over of foreign currency loans and supporting currency reserves. Especially since the government only used ISK to refinance the banks.

  • James Wilde March 16, 2010, 9:27 am

    I have to say, Alda, that the number of comments to your blogs is going up these days, which may be an indicator of how your blogs spread is increasing. Congratulations.

    One comment to my own blog – on a plan to create a Scandinavian superbank – is also particularly relevant to Iceland’s situation.

    “It is said both in history and philosophy (and I presume, in law), that the codification of the law was a major step forward in human history. Before the rule of the law came the rule of the fist, or strength. That is, he who was strongest/best armed/had the largest army took what he wanted. With the rule of law this (mostly) changed.

    But now law has become its own form of rule of the fist, the legal fist. It is now legal (or at least not illegal) to rob a country blind and leave it bankrupt. Those who have the strength of the law on their side get what they want while those who don’t get shafted (now legally, as apposed to physically before).

    Thus it is time for a means for the masses to protect themselves from the tyranny of the law, just as the law has protected them from the tyranny of force before. I’m just not quite sure how to make that happen though.”

    It could be interesting to see if your commentators have any suggestions to the last paragraph.

  • Bromley86 March 16, 2010, 10:48 am

    Thus it is time for a means for the masses to protect themselves from the tyranny of the law, just as the law has protected them from the tyranny of force before. I’m just not quite sure how to make that happen though.

    There is already a means. Default.

    Countries are in the enviable position of being able to cancel the mortgage without even handing the keys back.

    All default means is that people will be less likely to give you money next time. No stealing of resouces etc. And I would hope that no one would suggest that a country somehow has the right to borrow funds that the lenders are concerned they won’t get back.

    And, as with sex, not doing it in the first place is the best protection. So if the masses don’t borrow any money, they won’t have to repay any.

  • snowball March 16, 2010, 1:00 pm

    james, with all my respect but imho the icelandic situation is caused more by the absence of law combined with non existing law enforcement than by “tyranny of law”. as a wise man once said, the truth is always the best lie. so lets face it, high materialistic expectations of too many locals bankrupted this lovely place. in short, the agenda of 2001 to 2008 was “i trade my future for a range rover fleet”. a perfect example are the fx car loans which are planned to be written off now. according to icelandic media it was clear since 2003 that these loans were illegal. where was the oversight and the action of legal bodies here in iceland? is it now the fault of the creditors? if this goes to court, every sobber judge will approve that there was an astonishing lack of oversight and law enforcement, aka iceland was a northern version of the wild west. correct me if i am wrong, the law of the strongest was more a feature of the wild west, isnt it?