The Icelandic economy has turned the corner,
allowing the government to focus on stimulating growth and
restructure its debts, the countrys economy minister said
The government expects the economy to grow by between 1% and
2% this year, but debt restructuring is essential to spurring
growth any faster.
Today we can say that weve managed to turn
around the economy,Arni Pall Arnason told Emerging
Markets. The main focus now is to start encouraging
higher growth and to carry on with debt
His comments came at the end of an upbeat session for the
island economy that saw two credit outlook upgrades in the past
10 days and plans to issue Icelands first Eurobond since
Once we have the debt restructuring out of the way,
companies can start investing again and move on, Arnason
After facing financial ruin with the collapse of its
outsized financial sector in the wake of the credit crunch in
2008, Iceland was forced to impose capital controls and
restructure its debts.
The past two years have been tough, with dramatic cuts to
public spending. But Arnason was proud of having maintained
social solidarity throughout a painful crisis.
We cut a cumulative 30% off the cost of public
administration, but only 5% from support to the
handicapped, he said. It was important at all times
to prioritise social solidarity.
Further growth will have to come from foreign direct
investment. However, a resolution will be needed for the
long-simmering dispute over Dutch and UK investors who lost
their deposits in the Icesave savings bank.
To get FDI, we need to get Icesave out of the way. We
have to make it clear that Iceland always honours its
obligations and always will, he said
Arnason said that assets held by the remains of the
collapsed high-interest deposit bank should be sufficient to
reimburse 99% of Dutch and British depositors not
just the individuals who had deposit guarantees, but also the
unguaranteed depositors like local authorities.
The lesson of the crisis, he said, is that Iceland cannot
move fast enough to join the eurozone.
The case for a multinational currency is as strong as
ever. Icelands experience in 2008 is a case in point: as
a small, open, developed country with a very small currency, we
were unable to keep up the defences we need to protect the
public from currency volatility.
He argues that the importance of the euro to the EUs
smaller member states is such that considerable sacrifices of
sovereignty are worthwhile if they keep the project alive.
The Icelandic experience shows that the lack of an
institutional framework for financial discipline can be very
costly, Arnason said.
One approach to that could be supranational control of
fiscal decisions, but another approach could be [EU economic
and monetary affairs commissioner] Olli Rehns idea of
having a framework with countries taking reasoned decisions
based on advice from their peers.