“The old saw “safe as houses” no longer cuts. And money in the bank is no longer “money in the bank.” We did not think the system could fail, but late last month government officials, in a dawn announcement, told us they had been compelled to give a 400-billion-euro guarantee to the banks, which were running out of money. It has been estimated that if the banks have to call in that guarantee, it will bankrupt the country for the next 37 years. And it will get worse.”
“ICELANDERS have woken up in a new novel by Franz Kafka, where everybody is guilty by default. One by one, the mighty banks have been seized by the government, and Icelanders, aghast, have been told that each and every one of us owes millions of dollars — to whom, we don’t know. The earnest faces of the politicians, of bankers and tycoons almost crying, give us the final touch of the surreal. The situation is comparable only with the fall of the Berlin Wall in 1989 and the 9/11 attacks — something final and yet beyond one’s individual grasp has happened. (…)
Suddenly, there are lines in the bank for foreign currencies, and there is a limit on how much we can get — overseas banks are refusing to accept our freefalling currency, the krona. One of my students, studying in Spain, can’t get money from Iceland for her rent. Importers and exporters can’t get currency to conduct business. Icelandic tourists abroad have problems getting cash from A.T.M.’s. The British government has applied terrorist laws to freeze the assets of an Icelandic bank; the list goes on as if it were a script for the nightmare of globalization.
We thought we had friends, in Europe and in the United States. They were sought in the hour of need and found to be busy with their own problems; only the Scandinavians were prepared to extend a helping hand, and then, all of a sudden, Russia — somehow the world has changed.”
And then there’s Pakistan (not from the same series):
“The Zardari government is sailing into a perfect storm of political instability and economic turmoil. The economy is in a virtual freefall. International agencies have slashed its credit ratings. The rupee has hit an all-time low against the dollar. Capital flight is believed to be continuing despite efforts to stop it. Suicide attacks and kidnappings have led to the repatriation of foreign skilled labor. The bourses are a blood bath as foreign investors continue to pull out. Unable to pay its bills, the government has taken to issuing I.O.U.s to private- and public-sector companies. Overall inflation is at a punishing 30-year high. Power shortages, the worst in at least 15 years, are disrupting businesses already hurt by higher input costs. To top it off, much-needed funding and easier terms promised by Pakistan’s allies and multilateral donor agencies have yet to materialize. Foreign-exchange reserves, worth about two months of imports, are fast running outâ€”and with the worsening economic situation, so is public patience.
For its part, the Zardari-led coalition government, already besieged by political rivals and insurgent groups, has had to take unpopular measures to prop up the economy. It has raised taxes, upsetting the business community. It has trimmed government spending, prompting bureaucrats to grumble. It has increased tariffs on power, angering consumers and businesses already fed up with outages. And it has phased out subsidies on imported fuel, leading to price increases in everything from bus rides to cooking oil and prompting small, periodic protests.”
Inflation in Pakistan is running around 24%. Per capita income was around $1,000 before this crisis hit; it’s a lot less in the rural areas. China has just assured Pakistan that it will not allow the country to default on its loans; this is important because Pakistan has been hemorrhaging hard currency, and it wasn’t clear how it was going to manage otherwise. But Pakistanis are in for a world of hurt regardless.
It’s going to be tough here, but we will not get the worst of it.