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We haz: Total debts of the Icelandic Treasury

Well, clearly the Ministry of Finance was sufficiently shaken up by the visit of Mr Jurschevski to send out a press release with details of the debts of the Treasury.

I don’t expect this will be of great interest to many of my readers, but no doubt it will be to some of you, so here is  the press release in full:


Subject: Press release No. 8/2010: Total Treasury debt

  • Total Treasury debt at the end of 2009 corresponded to 78 per cent of GDP.
  • Net Treasury debt (i.e. debt less financial assets) amounted to 39 per cent of GDP at the same time.
  • Substantial assets in financial and energy concerns offset the net debt of the Treasury.
  • The Minister of Finance recently approved a policy on debt management for the Treasury up to the year 2014.
  • The Treasury‘s liquid asset position is sound and will meet repayments into next year.
  • Prospects for Treasury borrowing are good.

In recent days, there has been some discussion of the debt of the Treasury and its debt management. For this reason, the Ministry of Finance wishes to provide the following information regarding the debt position and its development.

Following the collapse of the banks, the total debt of the Treasury increased from 310 billion krónur in 2007 to 1,176 billion krónur at the end of 2009.

The total debt of the Treasury thus amounted to 78 per cent of GDP at the end of 2009. According to the medium-term program for fiscal finances presented to the Althingi last autumn, the total Treasury finances are projected to be in balance by 2012 and in surplus in 2013. According to the program, debt will begin declining as of and including next year.

In viewing the development of the debt position, it is important to view the source of the increase in debt. Most of the increase is due to investments in assets that mirror the debt accumulation. The foreign debt of the Treasury thus amounted to 356 billion krónur at the end of 2009, but this amount is offset by 281 billion krónur in foreign exchange reserves. Net foreign debt thus amounts to 75 billion krónur.

Debt arising from the reconstitution of the banking system amounts to 186 billion krónur.This amount is offset by the corresponding ownership of capital and credits to the banks.

Debt in the domestic market amounts to 625 billion krónur, against which Treasury deposits with the Central Bank amount to 164 billion krónur.

The Treasury has applied active debt management in the finances of the Treasury and follows a debt management policy that was drawn up last year in cooperation with experts from the International Monetary Fund and other foreign and domestic experts. The policy outlines the aims and criteria for debt management for the next several years.

The liquid position of the Treasury is strong, and Treasury deposits with the Central Bank amounted to 164 billion krónur at the end of last year. The Treasury can therefore refinance 130 billion in loans that mature this year. The financing needs of the Treasury due to deficits have been fully met in the domestic bond market, indicating the faith that domestic investors have in the Treasury.

The table below shows the assets and debt of the Treasury at the end of 2009. Treasury debt is divided into domestic and foreign debt. Financial assets consist of loans extended and deposits.

Debt                                     2009                       GDP

Domestic debt

– Market securities            439

– Bank refinancing             186

– Other domestic debt      195

Foreign debt

-Foreign debt                      356

Total debt                           1.176               78%

Assets Deposits and

loans extended                    596                      40%

Net debt                               580                    39%

The Ministry of Finance, March 15th 2010



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  • James March 17, 2010, 7:12 am

    I assume that, immediately before the crash, this same institution said Iceland’s debt position was fine and supplied copious statistics justifying its assessment and projections. This press release is worded as a marketing and comforting document, not a neutral assessment…

  • Bromley86 March 17, 2010, 7:23 am

    Ha. Gone quiet, hasn’t it. Numbers seem to be a bigger turn-off than wall of text 🙂 .

    I find it hard to believe these figures. If total debt is 78% and net debt is 39%, compare that to the UK. It’s one of those things that amateurs like myself have to be damn careful with, in that it’s very easy to end up comparing apples and elephants. But I think that this figure from the ONS is a comparable net debt for the UK.

    60%!!! vs. 39%

    And we’re going to be borrowing another 13% this year. Joy.

    I’m sure that the negotiating teams must have known these figures already, but Lee Buchheit is probably asking the MoF to kindly shut the hell up right now 🙂 .

  • andy March 17, 2010, 9:59 am

    No issues over valuations of current assets (Book value or mark to market?), nor any documentation on assumptions (What FX rates are being used).

    Presume Glacier, Icesave and IMF factored in (Paid in FX rather than monopoly money)……or perhaps not. Depends if there are any state guarnatees attached to these loans.

  • Flygill March 17, 2010, 11:21 am

    Another attempt at sanitizing the awful truth about the perilous state of Iceland’s economy.
    For starters, let’s add in the 350 billion bond that New Landsbanki owes Old Landsbanki – New Landsbanki is technically insolvent so the government must pay that amount (although this may be the 356 billion amount mentioned in the press release).
    Then there’s the 1600-1800 billion ISK sitting in Icelandic bank deposits. Some of it is foreigners’ money parked there until they can cash out, and when it is converted the Icelandic government must come up with hard foreign currency. The rest of the deposits are backed by the Icelandic government, and there is no way the government or the Central Bank can cover that amount except by printing money, and lots of it.
    Don’t forget interest payments due on Icesave, the interest due on other foreign loans, and the impending cash-out of 2 billion dollars in bonds coming up in the next several years.
    Iceland is bankrupt. The only solutions are to join the EU and pray for relief, or completely repudiate all current and future foreign debts and maintain strict currency controls combined with a 30-40% reduction in imports, ie nearly all goods consumed by Icelanders, since nearly all products and raw materials are imported.
    The Icelandic government receives something like 400-500 billion ISK per year in foreign currency from aluminum and fish — so how can the government pay for normal government functions AND pay down this mountain of debt? IT CAN’T.
    Not that Iceland is alone — the US owes at least 10 trillion, without 12 trillion toxic debt insured by the government, with another 50-60 trillion owed for future Social Security, Medicare and entitlement payments due in the next 20 years.
    And let’s not talk about the UK!

  • Michael Lewis March 17, 2010, 12:46 pm

    “No issues over valuations of current assets (Book value or mark to market?)”

    Thats the issue Japanese banks had: not marking to market real estate assets – if they had done, they’d have been bust. Hence the term ‘zombie’ bank was born (unable to lend and effectively bust – the living dead of banks).

    Of course, some banks may have been happy to change accounting rules away from mark-to-market as the financial crisis took hold.

  • Michael Lewis March 17, 2010, 1:43 pm


    The US is fortunate that the USD is the reserve currency. Ironically at times of stress people still buy USD, at one point the yield on Treasuries went negative: essentially people were willing to pay the US Treasury to borrow from it. That was an extreme event, as people thought that pretty much all banks would go bust and then you turn to the reserve currency bank – or buy physical gold that you can securely store.

    “And let’s not talk about the UK!”
    Defaulting on its debt, by printing money. Hence the already drastic fall in Sterling. It will eventually feed through into inflation. We’ll come a cropper (as they say) in the UK sooner or later as a result of all this.

    The US will take a little longer, but I expect foreign governments to slowly move away from US Treasuries and eventually the dollar may lose its reserve currency status.

  • snowball March 17, 2010, 4:31 pm

    at michael lewis

    i think the new icelandic banks are zombie banks (thats one reason why the creditors of the old banks dont want to come close to them). major part of their assets are real estate loans here on the rock. and i totally dont get it why real estate prices havent followed the g-force. under normal circumstances prices should have halfened or even more if one takes into account that real estate prices have nearly trippled in the unsustainable boom phase. for every asset is a buyer, its just a matter of price.
    a small survey shows that many flats and houses in iceland if valued at current market prices yield at 4-5% on the rental market. and inflation is somewhat around ~7 to 8%. sounds like someone slept in math class :-). in a normal world house prices should fall by at least another 50% to offset inflation and maintain a decent return.
    a question to michael lewis the banker, would the isk in free fall bottoming out at 1:500 solve that problem by attracting foreign investments in the icelandic real estate market? wouldnt this take a lot of pressure from the new banks and put them on more solid foundations?
    there is even a historic predecessor. that happened not so long time ago when east and west germany were united and attractive east german cities were more or less bought up by investors from west germany and abroad (dresden, berlin etc…). maybe norway could step in as the investor in iceland so that everything stays in the family :-). i am quite sure the norwegians would buy, however not at the current prices.

  • Michael Lewis March 17, 2010, 6:00 pm

    Well I’m not a retail banker or real estate expert, but to me yes – if you look at the cost of houses in a ‘neutral’ currency like USD, you’d see that the houses have probably devalued by over 50% already.

    Devaluation is very bad for savers – it takes money from savers and hands it to the profligate. Just what Gordon Brown is attempting to do in the UK. However that can never last, as the country needs to sell Gilts and investors will just start demanding higher and higher yields…

    From a devaluation, you may see some demand from foreign buyers as the real estate is cheaper in ‘their currency’. The question you’d have to ask though is: what replaces finance industry in Iceland? – Because that drove prices up to levels that they may never reach in real terms for decades.

    So expecting prices to ‘recover’ may be unrealistic. Hence demand will come but maybe not as investments, now a bolt-hole for a fly fishing fanatic ….

    I’m sure plenty of companies are thinking that assets priced in ISK are incredibly cheap now. Wouldn’t suprise me in the slightest if some companies were trying to snap up some Icelandic assets on the cheap (if they need them).

    The trouble for banks (and I can’t say if this applies to Icelandic banks or not, so this is all hypothetical): they should be allowed to hold less reserves in a recession – to help stimulate the economy – they can’t, if they call in ‘non performing’ loans, they’ll have to write down the value of some of their assets, which may well have a value that doesn’t presently reflect reality. So, if you are a dodgy real estate company in country X, you may, thanks to the severity of the crisis, be holding a gun to the head of your bank.

    Goes back to the old saying (which I can’t quite remember) owe your bank £5 and they are nasty to you, owe them £50,000,000 and they are nice to you).

  • Michael Lewis March 17, 2010, 6:02 pm

    As a side note when I say ‘recover’ above, I mean in real terms, essentially a recovery in ISK against other curencies and accounting for inflation etc…