The new government of Greenland has inherited a difficult financial situation from its predecessors, with bankruptcy as a real and present danger.
The IA-led coalition government, which took over from the former Siumut-led coalition following national elections on 2 June, is already facing its first real threat, as it is alleged that the country is on the verge of emptying its coffers, mainly due to subsidies granted to Home Rule-owned companies such as Royal Greenland, and according to an article in Danish newspaper Berlingske Tidende, Greenland could be bankrupt as early as 2010.
In order to ensure sufficient liquidity for the national economy and to secure the continued efficient running of the country and its 17 publicly owned companies, politicians could be forced to go cap in hand for loans from foreign banks by 2010.
The information comes from an anonymous source within the Home Rule administration who has insight into Greenland’s finances.
The newly elected government have nevertheless confirmed that publicly owned Royal Greenland will be rescued from its current financial difficulties with a cash injection of 500 million kroner, but possibly as much as 650 million kroner.
With this payment to Royal Greenland the national finances, which currently stand at 2 billion kroner, will begin to be dangerously drained, with a very real risk of being empty by as early as 2012.
Home Rule authorities had already budgeted for a deficit of 300 million kroner. In addition, the previous Siumut-led government earmarked as much as 300 million kroner for hydroelectric power projects in the towns of Ilulissat and Sisimiut.
The payment to Royal Greenland, together with the planned budget deficit and hydroelectric project funding, total almost half of the country’s national finances.
That could leave the treasury with just over one billion kroner in reserves by next year, and would put the country at a serious risk of seeing its finances dropping below what is regarded by politicians and economists in Greenland as an important minimum reserve credit of 600 million kroner.
As soon as the country’s reserves drop below 600 million kroner, there may be little alternative for the government than to take out expensive foreign loans, which are often accompanied by high interest rates that worsen the already difficult situation.
However, Christen Sørensen, chairman of the advisory committee for Greenland, put doubt on the seriousness of the situation.
‘With finances of about two billion kroner the Home Rule Government is in a position of good liquidity,’ said Sørensen.
But the real question is for how long.
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