Iceland Jailed Bad Bankers While Modi Govt Bails Out Defaulting Sugar Mills

In February this year, Iceland jailed four of its rogue bankers for market manipulation and for defrauding ordinary people. No, the heavens did not fall. Thunder and lightning did not strike. The wrath of God did not descend upon the people of Iceland. On 13 February 2015, Reuters had reported:

Iceland’s Supreme Court has upheld convictions of market manipulation for four former executives of the failed Kaupthing bank in a landmark case that the country’s special prosecutor said showed it was possible to crack down on fraudulent bankers. Hreidar Mar Sigurdsson, Kaupthing’s former chief executive, former chairman Sigurdur Einarsson, former CEO of Kaupthing Luxembourg Magnus Gudmundsson, and Olafur Olafsson, the bank’s second largest shareholder at the time, were all sentenced on Thursday to between four and five and a half years. –

In less than four months since this happened, Mathew Yglesias reported in Vox Business and Finance two days ago that the economy had in the meanwhile done quite well:

Yesterday, Iceland’s prime minister, Sigmundur Gunnlaugsson, announced a plan that will essentially close the books on his country’s approach to handling the financial crisis — an approach that deviated greatly from the preferences of global financial elites and succeeded quite well. Instead of embracing the orthodoxy of bank bailouts, austerity, and low inflation, Iceland did just the opposite. And even though its economy was hammered by the banking crisis perhaps harder than any other in the world, its labor didn’t deteriorate all that much, and it had a great recovery.

For those who have seen the brilliant documentary film Inside Job, which exposed the unscrupulous game played by the bankers and the financial oligarchy in defrauding millions of ordinary people and eventually triggering of the financial crisis in the US and the world at large, the story of Iceland’s descent into the dystopic neoliberal world must still be fresh in their minds. The entire story need not be repeated here. Iceland not only eventually arrested the rogue bankers, it actually prioritized jobs and the result has been remarkable. So, says the Vox report cited above:

There’s no free lunch in life, and no country recovers from a severe recession without some bad things happening. But while most developed countries have gone through years of grindingly high unemployment paired with super-low inflation, Iceland did the reverse. It let the value of its currency tumble, which naturally brought about higher prices. But as a result, the country’s export industries rapidly gained ground in international markets. Unemployment rose, but maxed out at a modest 7.6 percent before falling steadily to a very low level. In the US and Europe, the priority has been on low inflation to protect the asset values of the wealthy. Iceland prioritized jobs, and it worked.

Interesting. There is no free lunch, as neoliberals never tire of repeating, convincing lesser mortals about this immutable law of economics. But who are the ones having a free lunch? It turns out, not the workers working for barely subsistence wages. They are always the big corporations and the banks. And it is time their bluff is called. Someone, somewhere had to show that you can arrest them, try them as criminals and prioritize jobs during a recovery – with nothing short of spectacular results. And Iceland has done that for starters. Meanwhile, our own Government of Achchhe Din has approved, just yesterday, a package of Rs 6000 crores to bail out rogue sugar mill owners who owe Rs 9, 500 crores in Uttar Pradesh alone to the farmers from whom they buy sugarcane. Major resentment had surfaced among Western UP farmers, many of whom had voted for the BJP in the parliament elections, highlighting the fact that many farmers’ suicides in the region were not simply due to crop destruction following on untimely rains but due to crores of unpaid dues by sugar mills. So the Modi Cabinet has now taken this ‘pro-farmer’ step of providing the same defaulting mills soft loans which will have a one-year moratorium on repayment – and to cap it all, they will be interest free – the government will pay the interest. From your money and mine. Talk of a free lunch! Here is Mr Gadkari, talking of how this subsidy will be paid to the mill owners, from a report in the Economic Times:

“Mills that would have cleared more than 50 per cent or 50 per cent of cane dues by June end would be sanctioned interest-free loans. The subsidy burden will be borne by the government for one year and would be funded by the food ministry’s sugar development fund,” Transport Minister Nitin Gadkari said after the Cabinet meeting on Wednesday.

But the Free Lunchers aren’t satisfied! Says Mr Abinash Verma, Director-General Indian Sugar Mills Association, in a report in the Indian Express:

“Why should mills take fresh loans when they are already sitting on huge piles of debt? Even if the Centre were to bear the interest burden, from where are we going to generate the profits to be able to repay the Rs 6,000 crore loans, that too within a year,” said Abinash Verma, director-general, Indian Sugar Mills Association (ISMA). According to Verma, the package does not address the basic problem of surplus sugar stocks and depressed ex-factory prices. “This had resulted in accumulated cane dues of around Rs 21,000 crore for the 2014-15 season (October-September),” he said.

Interesting, once again. So you buy the cane from the farmers, produce the sugar and defer the payment to farmers till your costs and profits are fully recovered! Till then the farmers can only stare in at the tables where free lunches are being provided, all in the name of paying the farmers!

Achchhe Din indeed.

9 thoughts on “Iceland Jailed Bad Bankers While Modi Govt Bails Out Defaulting Sugar Mills

  1. dark lord

    classic case of government intervention destroying livelihoods, industries and spreading misery allaround. During the last 3 years when the open market price of sugar was falling, govt decides to increase the minimum purchase price of sugarcane by 50%. Now the open market price of sugar does not cover the procurement cost of sugarcane, forget debt costs, labor, power costs, storage charges etc.

    By the way, I think there is already a court order according to which any money coming through sale of sugar will go first to cane farmers and then to any other party (including lenders). Banks will not give debt to mills if their loan is not assured repayment. So the mills treat farmer payables as debt. So there is no profit being taken by the mills.

  2. Pankaj

    The article is a good one and the government shouldn’t bail out the rich, till the bailout is affecting the masses. US didn’t bail out Lehman brothers and Merrilynch.
    When somebody is comparing it with Indian sugar industry the author shouldn’t missed the critical reason for these sugar mills in arrears… The sugar is a regulated industry… All sugar companies had to buy cane not at market price but at Statutory Minimum Price (SMP) decided by state government. This essentially means your raw material price is fixed and the sale price is market driven……so for sugar why the bail out is wrong…. When govt wants to run a company not on market terms but in its own terms then why should industry suffer…. In the current situation our produced sugar is costly than imported sugar and millers have stopped crushing. If bail out doesn’t happen India may have to import sugar as industries may die and would mean a current account deficit of more than 10000 CR…. What should it do? Save an industry which is livelihood of large no of farmers? Or take tough decision and let the industry die? The sugar mills in UP are in stress not in MH because the state government has been announcing bonus on SMP for keeping the vote banks …… Similar is the case with Basmati rice millers…. They are also under tremendous stress as exports to Iran has stopped (Iran use to import 40%) but here govt is not helping them with money but with talks with Iran to resume imports from India

    The intent of the author is genuine but it could have been more appropriate if the author would have made an attempt to understand why the companies are running into default…. Iceland punished 4 bankers not all the banks and here the industry is at stake… Not a correct comparison

  3. Aditya Nigam

    Between dark lord and Pankaj,
    There may be a point in your argument about how government intervention is impacting on the prices and the state of the sugar industry, the question here is not exactly that. Since you ask Pankaj (and dark lord has a similar point), “…why should the industry suffer?”, my point simply stated, is why should the weakest party in the whole chain, namely, the farmer suffer? If you buy the cane, you pay, irrespective of what you do with it. You cannot hide behind the excuse that profits have not come in yet? Can the farmer or a worker take this stance? That is precisely the point being made above.

  4. Peres

    A valid point has been raised here – why should the government meddle in the market instead of allowing prices to discover their own levels? The plight of the sugar industry, as depicted by the author, is a classic case of inefficient government intervention and mismanagement of a market. The current distortion of prices that the government enforces makes everyone unhappy, as the author has so aptly pointed out. Let the industry operate entirely on its own. In that case only investors who are able to take profit will remain, farmers will be paid regularly, and all stakeholders will be happy.

  5. Aditya Nigam

    Peres, you seem to believe in some utopia of the free market – leave everything to it and everybody will live happily ever after! I do not. Neither in the magic of government intervention nor of the free market. What I am saying above is simply the obverse of what you make it out to be: I actually see ‘free market’ as a code for a ‘pro-business’ attitude and while there are forms of government intervention that I abhor, I do not buy the logic being pushed by neoliberals that if you leave things to the market to decide (prices for instance but more repugnantly, wages!) then “all will be happy”. I do not want to get into the larger issues in this response but let me briefly state two things:
    1. If you buy something, especially from weaker parties farmers or workers’ labour, for instance, you pay for it there and then. You do not say, cannot say, I will pay you only when my profits are realized. And if for some reason they are not realized, I will blame all and sundry for what is essentially my fraud. Do you think these companies sell even a kilo of their sugar on indefinite credit to consumers? A corollary of this is that if you do not like to do such business, please wind up and go to some other sector where there is less intervention or whatever else you are looking for.
    2. There is not one instance where corporations actually play the game by fair rules of free market. So they want land at throwaway prices to be provided by the government rather than make the landholders partners or buy land at market prices; they want wages to be depressed by their magic free market logic of ‘hire and fire’; they want government policies to be bent to benefit them and yet not pay taxes and bank loans – the scandalous story of the non-performing assets of banks is only too well-known.
    My point is that there cannot be separate rules for corporates and different ones for ordinary people. Not paying for what you have bought and used in production is theft. It should be dealt with as theft.

  6. Majumdar

    Aditya ji,

    If you buy something, you pay for it there and then.

    And that is what the sugar mills would do if they were allowed to buy something at market determined prices . (and they have done for ages even when they were forced to buy at prices well above what the market would have dictated)

    Regards

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