Iceland Borrows ISK 30 Billion to Save Economy Skip to content

Iceland Borrows ISK 30 Billion to Save Economy

Prime Minister Geir H. Haarde announced at the Althingi parliament yesterday that the state treasury had been granted an ISK 30 billion (USD 355 million, EUR 246 million) loan in foreign currencies to strengthen the country’s foreign currency reserves and stabilize the economy.

The country’s foreign currency reserves have thus increased fivefold in two years and now amount to ISK 500 billion (USD 5.9 billion, EUR 4.1 billion), Fréttabladid reports.

The prime minister’s announcement came as part of his report on the economic situation. He also announced that Iceland plans to apply for membership on an EU agreement on reaction and measures taken during an economic crisis, Morgunbladid reports.

“It is important to send this message out to the markets and this loan-taking should make it easier for the state treasury to acquire further loans and the loan-taking of the banks when that time comes,” said Jón Bjarki Bentsson, an economist at the Glitnir Bank research department.

The loan may not make any significant changes for the Icelandic economy in the short run, but should rather be considered as a stepping stone towards a long-term solution.

“It is a very good sign indicating that we can break out of this siege on the Icelandic financial market,” said Vilhjálmur Egilsson, managing director of the Confederation of Icelandic Employers (SA).

According to Fréttabladid, Prime Minister Haarde recommended in his speech to parliament yesterday that Icelanders concentrate on “producing, producing and producing more,” as the best method to fight temporary economic problems.

Haarde emphasized the importance of creating capital goods by harnessing Iceland’s energy resources increasingly and responsibly.

Foreign Minister Ingibjörg Sólrún Gísladóttir said in her speech to parliament yesterday that the banks have to stop diminishing their operational capital with excessive bonuses and dividend payments.

Leader of the Liberal Party Gudjón A. Kristjánsson criticized the government for not taking enough measures to fight inflation. Leader of the Progressive Party Gudni Ágústsson agreed, stating the government was not doing anything significant to help home owners and strengthen the economy.

Steingrímur J. Sigfússon, leader of the third and largest opposition party, the Left-Greens, was also unimpressed by how the government parties, the Independence Party and the Social Democrats, had assessed the situation.

“The reality is that we are stuck in a vicious cycle of hyper inflation and sky-high interest rates which diminish the quality of life in this country every day. Decreasing the purchasing power of the public, increasing the mortgages and causing great difficulties,” Sigfússon said in his speech to parliament yesterday.

Click here to read more about the economic situation in Iceland.

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