The fortress of Città di San Marino, a UNESCO World Heritage Site. The once “happy island” of San Marino is seeking an IMF loan to bolster its state-owned bank.
Photo credit: Max Ryazanov/Creative Commons
Loan for enclave still affected by bad debts from 2008 financial crisis equates to £7,500 per resident.
Leaders of the medieval enclave of San Marino are preparing to ask the International Monetary Fund for a €250m (£222m) loan to bolster its banks, still weighed down by bad debts 10 years after the global financial crisis.
The microstate, which is landlocked within central Italy, has struggled to recover from the effects of the 2008 crisis, which not only exposed the secret bank accounts that helped to generate a hefty amount of its wealth over the years but also embroiled its largest bank--Cassa di Risparmio della Repubblica di San Marino (CRSM)--in a money-laundering scandal.
Seven banks have closed within the past decade with the last five standing saddled with bad debts of approximately €1.7bn, equal to about 117% of the state’s GDP.
The amount may seem small compared with the €185bn of non-performing loans that Italian banks had on their books at the end of last year, but it’s enough to spur San Marino’s government, elected in late 2016, to take bold action: apply for an IMF loan that is equal to £7,500 per head of its 34,000 population.
The priority is to salvage the state-owned CRSM, which represents about 40% of the state’s banking market and where most of the country’s population hold their accounts.
CRSM has received government cash injections totalling €250m since 2011 but it still posted losses of €500m in 2016.
A review of its assets across the entire San Marino financial system concluded that an IMF loan was “indispensable” as the government strives to create a more transparent and robust sector.
While a formal request for help from the IMF has yet to be made, the government has calculated it needs €250m.
Simone Celli, San Marino’s finance minister, said IMF assistance could help to restore “credibility for the entire country, not only the banking system”.
The 2008 crisis prompted a period of self-reflection for San Marino--nicknamed “the happy island” in the 1980s--who have had to come to terms with a reputation tarnished by shadowy financial dealings.
Residents were particularly irked when the former Italian economy minister, Giulio Tremonti, said the country had grown rich due to complacency towards financial fraud, money laundering and tax dodgers--the majority of them wealthy Italians. The country has also come under pressure from both Moneyval, the Council of Europe agency that monitors money-laundering laws, and the OECD.
Keen to turn the page
The people of San Marino had enjoyed a proud history and a reputation for sheltering refugees and those fleeing persecution. Now, it seemed, they were defending criminals. Its young leaders are determined to set the country on a new path; their efforts have led to it being removed from the European list of tax havens last year. “Let’s just say that things [in the past] weren’t very clean,” said the industries minister, Andrea Zafferani. “But now San Marino really wants to turn the page.”
Perched on the slopes of Mount Titano, overlooking the Apennine mountains of northern Italy and the Adriatic coast, there is no obvious sign of economic anguish in San Marino city’s historic centre. It is still one of the wealthiest countries in the world in terms of GDP per capita, which was $47,910 in 2016, though that is down substantially from $90,667 in 2008. About 90% of residents own their homes.
Buses from Rimini still deliver plenty of tourists throughout the day, with many arriving in search of duty-free perfume, sunglasses and electronics. But it is not without problems. Forty-eight shops have closed so far this year, according to Andreina Bartolini, a shopowner and president of San Marino’s union for small traders.
“In the centre you’re seeing things you’ve never seen before--shops just closing without being sold, or products being sold at ridiculous prices,” she said.
Fall in big-spending Russians
She said a combination of factors have hit San Marino’s tourism trade since 2008, from the credit crunch and boom in online shopping, to a drastic fall in the number of big-spending Russian visitors due to a drop in the rouble, as well as economic problems over the border in Italy.
Shop and business owners remain cautious about the IMF loan, with some urging leaders to agree only an amount that the country can repay.
The restructuring will involve unpopular decisions, such as cutting public sector salaries and overhauling pensions. But the government describes these as necessary evils to get San Marino back on track.
“In a country where people lived so well for 20 years, it’s normal there will be protest,” Celli said. “But the interventions are necessary in order to make the country more secure and credible.”