Iceland’s Natural Resources to Save Economy? Skip to content

Iceland’s Natural Resources to Save Economy?

Two MPs for the Independence Party, Bjarni Benediktsson and Illugi Gunnarsson, have expressed their views that harnessing Iceland’s natural resources for powering heavy industry could create renewed trust in Iceland’s economy.

The MPs said in an interview with weekly Fréttabladid business supplement Markadurinn that it is important to demonstrate that the Icelandic economy is not entering a long period of stagnation.

“In that regard we must look towards harnessing our natural resources because in that field we certainly have a head start compared to other nations,” Benediktsson said. He and Gunnarsson both claim that Iceland’s political parties are less divided in their opinions on heavy industry than people might think.

The MPs agree that it is important to create circumstances where the Central Bank can lower the policy rate, which is currently set at 15.5 percent, and believe further constructions of power plants for heavy industry might fulfill that purpose.

“Of course it is possible to limit inflation by killing the economy with interest rates, but that is not an acceptable solution,” Gunnarsson said, explaining that the Central Bank’s policy rate is mainly used to influence the currency rate of the ISK.

The two MPs admit that there have been some mistakes in economic administration in Iceland, like when the administration does not fully support the Central Bank’s policy. Benediktsson and Gunnarsson added that speculation with co-called króna-bonds have damaged the Icelandic economy.

“We have to get out of this vicious cycle and instead get foreign funds in the form of long-term investments. I believe the monetary policy of the Central Bank has run into serious trouble,” Gunnarsson said, arguing that Iceland is sailing into a great depression and international loan-givers may decide not to grant loan-capital to Icelandic banks.

Benediktsson and Gunnarsson called for a joint initiative in the next 12 to 18 months to solve the problems facing the Icelandic economy where the Central Bank and the government take an active role.

In addition, the commercial banks could ease the load on the economy by founding foreign daughter companies, employers should be careful about rising prices too much and the federation of labor should remain responsible, the MPs suggested.

In regards to adopting a foreign currency, Gunnarsson said such ideas are natural considering the fluctuations of the ISK. If the ISK cannot be balanced, Iceland should consider adopting other currencies.

Benediktsson admitted that the unstable ISK is causing serious problems and in light of the current economic situation he said he doubted that the advantages of having an independent currency outweighed the disadvantages.

Click here to read more about speculations on adopting a foreign currency and here to read more about the debate surrounding power plants and heavy industry.

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