Remember how Iceland got flattened by the financial crisis? How, as an IMF official put it to Michael Lewis at the time, “You have to understand, Iceland is no longer a country. It’s a hedge fund”?
Right, so, unsurprisingly, they slashed their aid budgets right back after the crisis, and gave just 0.22% of gross national income to official development assistance in 2012 (total spend: $26 million). But get this: they’ve set a target of giving 0.7% by 2019.
There are only 300,000 of them, for heaven’s sake. A community the size of Swansea or Reading are going to be giving something like seventy million dollars in aid - just a few years after facing a national near death experience. Can anyone even imagine that happening here?
This made me curious about what else has been going on in Iceland since the crisis, and led me to this fascinating paper on Iceland’s Financial Crisis and Level of Living Consequences, by Stefán Ólafsson. Some snippets:
The government went into a standby program with the IMF that ended in the autumn of 2011, with most of the goals relating to resurrection of the financial system and containment of public finances having been achieved. The IMF declared Iceland as a graduate with flying colours. Growth of 3-4% is expected in 2011 and some growth for the next years, while the extent of government debt seems set to be reduced from 2013 onwards. The government had also declared that it aimed to safe the welfare state against cuts as far as possible. In effect that meant less expenditure cuts for welfare issues than for other fields. That has in effect been the case. The public budget situation was mended with a mixed way of expenditure cuts and tax increases, in similar proportions, with taxes raised particularly on higher income groups.
Unlike pretty much everyone else everywhere, Iceland has come out of the crisis a more rather than less equal country:
The more vulnerable groups and lower income groups in general have had less extensive cuts in real living standards than the higher income groups. While the whole nation has suffered a setback in living standards that take it on average back to the state it was at around 2003-4, the lower income groups have not gone as far back as that and higher income groups are closer to the level they were at
around 2000. This was achieved by raising specifically minimum pensions for old age and disability pensioners, the minimum wage was also increased a little while general wages remained little changed, the social assistance allowance was raised significantly and the universal flat rate unemployment benefit was increased a little in 2009-10. Pensions for higher earning pensioners were however cut somewhat …
Direct tax rates on lower incomes were in effect cut a little both in 2009 and 2010 while they were raised on higher incomes. That was done by introducing higher tax rates for higher income groups and also by raising the tax on financial earnings as well as by introducing a new wealth tax aimed at those who had accumulated great fortunes during the preceding decades.
Any bailouts? Yes, actually, but not the ones you might be thinking of:
The government introduced various debt relief programs, in cooperation with financial institutions, pension funds and the labour market partners. These were generally targeted at households in greater need rather than flat rate across the board. Some interest groups and politicians had called for a flat rate cut but that was estimated to be both too costly for taxpayers and inefficient in alleviating the greatest problems.