October 09, 2008
Flaming Red Herring
Posted by Anna Gelpern

Iceland may ask for a loan from the IMF to go along with the $5 billion from Russia.  Until this bit of news, many folks I know were scratching their heads in wonder at why Russia and not the Fund.  Maybe it was false pride.  Maybe they thought Russia's friendship (see Ed Luce in the FT) was preferable to IMF conditionality.  Maybe in today's weird world, where raising money from foreign sovereigns is Wall Street Normal, a Russian loan looked like a market solution.

Today's New York Times feature on Iceland starts with the improbable "People go bankrupt all the time.  Companies do, too.  But countries?"  Actually, countries probably go bankrupt way more often than people on a per capita basis (if only because there are fewer countries and most live longer than people or companies).  Here are some examples.  Deep inside, a concession:  "Nations have gone bankrupt before, of course, but countries like Argentina -- not a country that thinks of itself as closer to Europe than the developing world."  Actually, Argentina often thinks of itself as Italy.  And Russia is in the G-8.  And the U.K. is nationalizing banks.  Anyway, it goes to show that we are all emerging markets now.  Submerging, actually.

Finance, Globalization/Trade | Bookmark

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Comments (2)

1. Posted by fedgovernor on October 10, 2008 @ 1:41 | Permalink

Anna,

A minimal check of Icelandic history would yield the knowledge that Iceland and the Soviet Union are old, old comrades.

"As Vladimir Krendel from the Moscow-based Institute for Financial Research put it: "We had a long-standing relationship with Iceland in the times of the Soviet Union, when we provided them with oil. This was very unusual because Iceland was part of NATO, and NATO was the enemy."

In the United States, we don't really trade with our enemies. Russia never had that luxury.


2. Posted by Anna Gelpern on October 10, 2008 @ 8:31 | Permalink

Many thanks for that minimal check, fedgovernor. The context is helpful. But I don't think you meant to suggest that direction of trade history determines IMF borrowing -- states with much longer and deeper histories of trading with Russia are some of the IMF's best customers. Ditto other trading pairs.

More on Iceland's trading in a nutshell under "General History of Icelandic Foreign Trade/Direction of Trade" on the embassy website http://www.iceland.org/us/the-embassy/trade-economy/. Iceland in Figures is also helpful. (IMF's Direction of Trade Statistics not available for download.)

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