Pathfinder Business Issue 12

ICELAND
local labour union may be required for some $80bn foreign debt. a $10bn stabilisation plan has – and when to relax currency controls. Plans
unskilled jobs. been agreed with the IMF, which includes a $2.1bn to cut the salaries of highly-paid state officials
any firm based in an EEa or oECd country loan. It may be optimistic, but Iceland plans to be and impose economies across the public sector
has the same rights to operate as an Icelandic- back in surplus by 2013. reflect the new mood of austerity.
registered company. Iceland also has access to the Federation of Icelandic Industries wants Meanwhile the government wants to build
EU research funds for r&d programmes and an immediate cut in interest rates. It’s also called an industrial strategy that includes the academic
joint ventures with companies from EEa nations. for swift agreements with overseas parties that community, and an energy strategy whereby
outside reykjavik, regional development funds have a claim on Iceland’s banks, so currency renewable will replace fossil imports. an advisory
offer credit and grants for various projects. restrictions can be lifted. ‘It’s vital for Icelandic group of vessel operators and fishermen is to
Iceland has seen radical changes: fishing, be appointed that can give expert guidance on
once dominant, has endured hard times, while Iceland may look isolated fishery protection and the marine biosphere.
aluminium smelting has become big business,
on the map, but it’s well-
there are plans for the directorate of Labour
lured by renewable hydro and geothermal and New Business Venture Fund to receive
power. ‘In the last four years smelters have
connected by air and sea to
more money for tackling unemployment, and
been waiting in lines to come into Iceland,’ says
Europe and North America
for a legislative bill to encourage business start-
Hilmarsson. ‘Before the aluminium industry we ups and innovation. ambition has not been a
were 60 to 70 per cent dependent on fishing.’ companies to have access to banks that can casualty of economic collapse: the government
there’s also a commitment to developing provide normal services and access to overseas wants Iceland ranked in the world’s top 10 most
areas such as data centres and the silicon credit,’ says FII. competitive countries by 2020.
industries. ‘we’ve started to promote Iceland since taking control of the big banks, the
for the carbon fibre industry… carbon fibre is government has imposed strict exchange RepaIRIng the cuRRency cRIsIs
entering the space industry,’ says Hilmarsson. ‘It controls. But it’s aware of the obstacles currency Iceland’s three largest banks – Glitnir, Landsbanki
is a high-growth industry but the factories are restrictions pose to potential foreign investors and Kaupthing – are all being restructured, with
on a small scale.’ and, says Hilmarsson, is making efforts to see if their domestic operations separated and re-
Hard times there may be, but Iceland’s new FdI ventures can be exempt. capitalised. they will remain government-owned
spirit of enterprise seems undimmed amid signs as everyone predicted, 2009 is proving for some time.
that the rise in unemployment is slowing and painful: GdP is likely to shrink by 10 per cent For the short term (probably two years)
the krona stabilising. ‘since the crisis, Invest in this year; an estimated half of businesses the Central Bank of Iceland has imposed a ban
Iceland has never been as busy as now,’ says are technically insolvent; and 15 per cent of on foreign exchange deals related to capital
Hilmarsson. Icelanders are experiencing negative equity. account transactions. It wants to stop capital
Many government priorities focus on banking flowing out of the country – which, it fears,
the actIon plan legislation and the progress of its IMF-approved could further weaken the krona. But there are
Iceland’s new government must reduce the recovery programme. no restrictions on currency transactions relating
budget deficit, restructure the banking system, It will have to decide on the long-term future to the import and export of goods and services.
and complete talks with creditors over the banks’ of banks – including possible foreign ownership would-be investors should be assured that the
deposits of foreign customers in Icelandic banks
are generally guaranteed under EU rules.
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despite its agreement with the IMF, the
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economy is expected to stay in serious recession
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through 2009-10. But it is hoped that Iceland will
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confidence is restored, domestic investment
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rebuilding confidence in the banking
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system is crucial. when assets of Landsbanki in
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the UK were frozen under anti-terrorism laws,
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this damaged the Icelandic banking sector, and
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disrupted the country’s international payments
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and settlements system.
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But Iceland is looking the bright side. It
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expects that, before long, the inflow of foreign
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exchange from exports will exceed the outflow
due to imports and that foreign reserves will
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gradually accumulate. It should then be possible
�� to sell this to foreign parties, enabling them to
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close their krona positions.
pAthfINDEr buSINESS l JUNE/JULY 2009 15
PBS12 pp12-19 Iceland.indd 27 5/6/09 15:26:38
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