Banks and ministers blame each other for the economy Skip to content

Banks and ministers blame each other for the economy

According to the Icelandic National Broadcasting Service, RÚV, Sigurjon Th. Arnason, co-CEO of Landsbanki said yesterday that the Icelandic banks were not responsible for the revised negative outlook for Iceland’s sovereign debt. It was the Icelandic government and central bank that had been working “out of step”, said Sigurjón.

According to RÚV, prime minister Halldór Ásgrímsson and finance minister Árni M. Mathisen both blamed the Icelandic banks for the revised outlook for Iceland.

Sigurjón however said that it was only two weeks since Fitch had upgraded its rating of the Icelandic banking system and, at the same time, pointed out certain weaknesses in Iceland’s economy. The government should look for explanations “closer to home”, said Sigurjón.

Ásgeir Jónsson, economist at KB-bank (Kaupthing) called the Fitch outlook a “storm in a teacup”. He said that the bank’s research departments must do a better job of explaining economic conditions in Iceland abroad.

Last night on RÚV current affairs program Spotlight (Kastljós), the economist Gudmundur Ólafsson, lecturer at University of Iceland’s business department, referred to the Fitch rating as a “yellow card”. He said the net inflow of funds into Iceland associated with the construction of the dam at Kárahnjúkar and the Alcoa aluminum smelter in Reydarfjördur was small. Most capital equipment was being purchased abroad and Icelanders only made up a small fraction of the workforce deployed. However, he said the inflow of funds because of increased mortgage lending was much greater, around ISK 250 billion, ten times greater than because of Kárahnjúkar. This inflow, and lower mortgage interest rate spreads, had fueled the recent boom to a greater extent than Kárahnjúkar. Gudmundur also said the valuations of the Icelandic stock market were “high” and would adjust eventually in spite of alleged attempts to manipulate prices.

According to RÚV, opposition members of parliament demanded yesterday that the government explain its plans for further heavy industry development in Iceland. Responding to the opposition, finance minister Árni Mathisen said he thought the government should continue to solicit investment in heavy industry, and it should not raise taxes or cut spending.

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