Iceland's Economic Climate
Over the past two weeks, economic developments took a sharp turn for the worse in Iceland. The country's three main commercial banks, Glitnir, Landsbanki and Kaupthing, collapsed owing to the financial storm now raging in international markets and the government has resorted to exceptional measures to stabilize the situation.
Effects in Iceland
The Icelandic population has been seriously affected. Unemployment is expected to rise significantly. Inflation is already in double digits and will continue to rise in the short term. Icelandic pension funds have lost millions of dollars following the collapse of the three commercial banks. Thousands of Icelanders have lost a considerable part of their life-savings.
The three banks were taken over by the Icelandic Financial Supervisory Authority under the provisions of the Act on the Depositors' and Investors' Guarantee Fund on Oct 6 2008. The purpose of the Act was to maintain an orderly operation of the banking system and to strengthen the position of depositors by giving them priority when allocating assets.
The Icelandic Government is consulting with a number of governments concerning the possibility of providing the Icelandic Central Bank with short term assistance.
There is a good probability that the total assets of Landsbanki will be sufficient to cover the deposits in IceSave, an online savings account in the United Kingdom. The governments of the two countries are reviewing the matter in detail through official channels with a view to finding a mutually satisfactory solution. Contacts between Icelandic and Dutch authorities on the same are ongoing.
The use of anti-terrorist legislation by the United Kingdom on 9 October 2008 to seize the assets of Icelandic banks was, in the view of the Icelandic government, disproportionate and extreme. The initial measures taken by the British government have since been partially withdrawn.
Iceland used to be one of the Europe's poorest countries, but gradually made a successful transition to a high level of economic prosperity. In 2007, Iceland was ranked on top of the United Nations Human Development Index.
Iceland was able to make the transition by applying modern techniques to the sustainable use of natural resources, including abundant fish stocks and renewable energy. Today, Iceland is a dynamic, technology-driven society with a young and well educated workforce. These and other assets should enable Iceland to endure the current financial storm and regain its former strength over the coming months.
· The Icelandic economy has been seriously affected by the current economic turmoil in international financial markets.
· The Icelandic government is taking deliberate action, including special legislation designated to stabilize the situation.
· The government is consulting with a number of other governments concerning the possibility of providing the Icelandic Central Bank with short term assistance.
· Iceland remains fully committed in its quest for a non-permanent seat of the UN Security Council 2009-2010.