We’re not the only country to have struggled against a seemingly disastrous economic downturn. So what lessons can we learn from others’ experiences?
Latvia: The Baltic Tiger
When did the economy crash?Years of rapid growth before and after Latvia joined the EU, in 2004, earned the country the name of the Baltic Tiger. The economy then sharply reversed in 2008.
What caused it?Latvia's boom was fuelled by easy money. Credit to households increased by more than 60 per cent annually from 2002 to 2006, creating a property bubble and driving the country's current-account deficit beyond 22 per cent of GDP. When the downturn struck, that credit dried up, as did demand for Latvian exports; the economy went into freefall.
How bad was it?Latvia suffered the deepest recession in Europe and what some experts call the steepest such decline on record. Over two years the economy shrank by more than 25 per cent, and unemployment rocketed to 23 per cent, the highest in the EU.
How did it affect public sentiment and national reputation?The crisis sent investors fleeing and dragged Latvia's credit rating down to junk. Public anger exploded in January 2009, when a protest march became a riot in Riga, injuring 40. The government collapsed a month later.
What steps did they take to get out of it?Latvia secured a €7.5 billion loan from the EU and IMF to stabilise the economy and save the country's second-biggest bank from collapse. Many public-sector workers lost their jobs, and those who didn't had their wages and pensions cut.
What worked? What didn't?The economy did not collapse entirely, the lat currency clung on to its peg with the euro and there are tentative signs of a recovery. It is too soon to say whether the price paid for fulfilling all of the IMF's demands was too high. Tens of thousands of Latvians emigrated, and the depth of cuts is likely to make the recovery slow.
Is it over now?In the third quarter of this year the economy grew by 2.7 per cent compared to the same period last year, and analysts say it will contract by less than 1 per cent in 2010. Latvia is still vulnerable to any downturn in global markets or sentiment, however.
Lessons for Ireland?Austerity may be the quickest cure for a broken economy. Daniel McLaughlin
Argentina The recession is well and truly over. On paper
When did the economy crash?Argentina was a late victim of the crises among emerging markets in the 1990s. Its economy slipped into recession at the end of 1998 and imploded in December 2001, resulting in a depression the following year.
What caused it?The local peso was overvalued from being pegged to the dollar. This made the country uncompetitive, crushing local industry. A spendthrift state racked up huge foreign debts to finance deficits, facilitated by the IMF, which tolerated corrupt politicians for too long before suddenly cutting them off.
How bad was it?Twenty-six people died as rioters ousted the president in December 2001. His replacement swiftly declared the largest default in history. Unemployment and poverty rocketed as the economy contracted a further 11 per cent in 2002. Their savings frozen by the government, people were forced to barter to get by.
How did it affect public sentiment and national reputation?Argentines were furious at both their political class and their enablers at the IMF. Hundreds of thousands emigrated. The country remains a black sheep in capital markets.
What did they do?The peso was devalued. Government spending was curbed and Argentina managed its first fiscal surplus in decades. After a stand-off of several years, the government forced investors into an eye-watering 66 per cent write-down in the value of their defaulted bonds.
What worked? What didn't?The devaluation was crucial in refloating the economy. It made imports prohibitively expensive and exports attractive, boosting local industry and employment. The result was trade surpluses and the accumulation of huge foreign reserves. Price controls introduced to cushion the impact of devaluation have led to hidden subsidies, which discourage investment and fuel inflation. A brutal haircut on bondholders has exacerbated the problem.
Is it over?The recession is well and truly over. On paper. The political, economic and social fallout is still working its way through a scarred society.
Lessons for Ireland?Argentina might have avoided the worst had it achieved some sort of a national consensus on how to save itself. Tom Hennigan
Finland: Bad luck, bad banks, bad policies
When did the economy crash?1991.
What caused it?Bad luck, bad banking and bad policies. Finland had a long boom, grossly excessive lending, predictable overheating and a steep crash. The unexpected implosion of the Soviet Union erased about 30 per cent of Finnish exports overnight, bankers had pushed their lending capacities too far, and from the late 1980s onwards Finland liberalised and deregulated the financial sector, failing to incorporate necessary precautions. Dr Sixten Korkman, an economist and pivotal player in the recovery, says the failure was largely political. But the ineptitude was not confined to the governing parties. "We used to say that the most powerful party in parliament was the 'Banking Party', because they were all protecting the privileges of the banks."
How bad was it?There was a sudden and savage economic decline. GDP dropped 6 per cent in 1991 and continued to decline. Unemployment approached 20 per cent, thousands of companies went bankrupt and families suffered. "We had a Nordic social safety net, so nobody was starving, but it was still extremely bad," says Korkman.
How did it affect public sentiment?The Finnish folk memory of the early years of the 1990s is of an overriding sense of doom and gloom. Curiously, suicide rates declined as a mood of solidarity spread among an embattled population.
What steps did they take to get out of it?While the country is still hauled forward as a classic example of deregulation and political irresponsibility gone awry, it has also evolved into an exemplar of Nordic prudence. The Finns took tough decisions and engineered strong growth. And Finland's prospects seem blessed by one particularly wise decision: education and RD spending were spared.
When did it end?The worst was over by 1993, but Finland has experienced further recession in the past year or so.
Any lessons for Ireland?Korkman says: "We ended up taking over a lot of assets by creating a bad bank; the government felt a need to force bankruptcies by grabbing assets and selling them much too early at fire-sale prices. The government should have sat on the assets for longer. The budgetary loss would have been much, much smaller." Clare McCarthyin Helsinki
South Korea Not a hint of economic difficulty
When did the economy crash?South Korea veered awfully close to recession but never crashed, one of just a few OECD countries that didn't. In the final three months of 2008 its economy slumped by 5.1 per cent, and people were preparing for a tough downturn, but quick action by the government staved off disaster, and analysts see economic conditions in South Korea as among the best in the world.
What steps did they take to get out of it?Once the economy started to falter the government announced billions in tax cuts and €36 million in fiscal spending measures to prop up the economy, and the central bank set about vigorously cutting interest rates: 3.25 percentage points within a couple of months. Its won currency was weak, which boosted exports because Korean goods became significantly cheaper overseas. Soon the chaebols – corporate giants such as Samsung and Hyundai – started to expand again.
What worked?Some say the secret to South Korea's success in beating recession is that president Lee Myung-bak once ran Hyundai. He took the approach of a company chairman, and, in January last year, when Korea was teetering on the brink of recession, he urged the chaebol companies to view the recession as an opportunity. Lee expanded the government's research-and-development programme and expanded tax breaks for R&D. Soon South Korean companies making mobile phones, flatscreen TVs and cars were expanding their markets.
Is it over now?Walk the streets of Seoul and you see rich, elegantly dressed people shopping and commuting, and not a hint of economic difficulty. South Korea's GDP rose 7.2 per cent in the second quarter of the year, after surging 8.2 per cent in the first three months. Analysts expect the economy to grow 6 per cent overall this year, which is its fastest pace in nearly a decade and way ahead of most other developed countries.
Lessons for Ireland?In 1953, after the Korean War, South Korea was in ruins, one of the poorest countries in the world. Now its 49 million people have an average income of over €14,000 and it is the world's 15th-biggest economy. The lessons for Ireland are basic: the government responded quickly to help exporters by cutting interest rates; it also cut taxes and opted for a generally prudent budget. South Korea runs a surplus in its balance of payments; its budget deficit is about 2 per cent of GDP and is expected to keep shrinking as the economy continues to expand. Clifford Coonanin Seoul
