From Volume 5, Issue Number 13 of EIR Online, Published Mar. 28, 2006

World Economic News

Iceland Looks Worse than Thailand in 1997

Iceland looks worse than Thailand in 1997, and its currency could sink by 60%. So warned Danske Bank, the second-largest Danish bank, in a new research paper, titled "Geyser crisis," March 22. In terms of parameters like the current account deficit, now reaching 20% of gross domestic product (GDP), the Iceland economy is the most extreme case in the entire OCED area. Therefore, "we think the economy is heading for a recession in 2006-7," in which GDP "could probably dip 5%-10% in the next two years," states the report.

While this picture already looks grim, the situation is actually much worse, due to an additional problem: a pyramid of debt. In the recent few years, there has been "a stunning expansion of debt, leverage, and risk-taking that is almost without precedent anywhere in the world. External debt is now nearly 300% of GDP, while short-term external debt is just short of 55% of GDP. This is 133% of annual Icelandic export revenues. Since 1990, total debt as a percentage of annual GDP has more than doubled, to 350%. This development has primarily been driven by the household and corporate sectors, which have doubled and tripled debt as a percentage of GDP, respectively. M3 money supply M3 rising by 22% annually.

External debt now accounts "for more than 80% of total debt," which in turn is "almost entirely denominated in foreign currency. Consequently, the Icelandic economy has become increasingly dependent on foreign capital," and "the willingness to lend of global financial markets. This raises the question of whether the economy is facing not just a recession—but also a severe financial crisis.

"Previous similar crises in other countries have sparked very large market reactions. In Thailand (1997) and Turkey (2001), the currencies weakened by 50%-60%." Comparing such precedents, "we conclude that Iceland looks worse on almost all measures than Thailand did before its crisis in 1997, and only moderately more healthy than Turkey before its 2001 crisis."

Killer Avian Flu Has Evolved into Two Separate Strains

According to researchers of the U.S. Centers for Disease Control and Prevention (CDC), the killer avian flu strain H5N1 has evolved into two separate strains, the Sidney Morning Herald reported March 22. "Back in 2003, we only had one genetically distinct population of H5N1 with the potential to cause a human pandemic. Now we have two," said Rebecca Green of the CDC, at the International Conference on Emerging Infectious Diseases in Atlanta on March 22.

One of the strains made people sick in Vietnam, Cambodia, and Thailand, in 2003 and 2004, and the second, a cousin of the first, caused the disease in people in Indonesia in 2005. According to the researchers, the two strains may share the same ancestor but are genetically very different—as are the different strains of the AIDS virus, the researchers pointed out.

"This does complicate vaccine development," said Nancy Cox, chief of the CDC's influenza branch.

Bird Flu Claims More Lives; Spreads All Over Asia

The World Health Organization reports that five young people in Azerbaijan have died of bird flu, possibly from collecting feathers from dead swans, bringing the total known deaths worldwide to 103. Over the past week, Egypt confirmed its fourth case, in a 17-year-old boy, and on March 21, Pakistan confirmed bird flu in poultry. In response to the outbreak of bird flu in foul reported in Israel in mid-March, the Palestinian Authority declared a state of emergency today, in the hopes of preventing the spread of the disease.

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