Economy suffers because of the high exchange rate Skip to content

Economy suffers because of the high exchange rate

In the wake of the lay-offs in rural areas at the end of last month (see Iceland Review – Daily News June 2, “Lay-offs cause concern”), the Icelandic media continues to report on the economic consequences of the current high exchange rate of the Icelandic currency, the króna.

The appreciation of the króna, has eroded the profit margins of start-ups and growth companies. Yesterday, Iceland State Radio, RÚV, interviewed the president of the association of growth companies, Samtök sprotafyrirtækja, Jón Ágúst Þorsteinsson CEO of start-up Marorka. He says many start-ups and growth companies are being squeezed since they receive the bulk of their revenues from abroad and cites as an example his own company.

The tourist industry is also being hurt. In another story, RÚV interviewed the president of the Icelandic Travel Industry Association, Erna Hauksdóttir. The first five months of this year, 92,000 foreign travelers visited Iceland, 5,500 fewer than last year. Erna blames the appreciation of the currency, as well as reduced marketing budgets. She is most concerned about the reduction in the number of conference guests since their average spending level substantially exceeds that of other visitors.

The president of the Federation of Icelandic Industries, Sveinn Hannesson, is interviewed in Fréttablaðið today. He says that good jobs are being lost since the high value of the króna drives Icelandic companies increasingly to locate substantial parts of their operations abroad.

Yesterday, Morgunblaðið ran a prominent headline on its front page, “All export sectors facing difficulties.”

Today, a story on the back page of Morgunblaðið focuses on the town of Bíldudalur, in the northwest, “40% unemployed.”

Separately, under the headline “The government did not head the warnings”, Morgunblaðið interviews economics professor Friðrik Már Baldursson; Ólafur Darri Andrason economist for the Federation of Icelandic labor unions, ASÍ; Left-Green leader Steingrímur J. Sigfússon; and Independence Party MP Pétur H. Blöndal.

Steingrímur criticizes the government for failing to pay attention to the warnings of the Central Bank of Iceland.

Pétur points out that the króna should eventually re-adjust and calls for patience and stamina.

Friðrik Már defends the Central Bank of Iceland for its high interest rate policy claiming that anything else would be imprudent under the circumstances.

Ólafur Darri criticizes the government for running a lax fiscal policy during this period of economic expansion and overspending when it should be exercising restraint.

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