Mark Flanagan, chairman of the International Monetary Fund (IMF) delegation in Iceland, said in his address at the Icelandic-American Chamber of Commerce (IACC) conference in New York earlier this month that the general economic outlook in Iceland was good.
Photo by Geir Ólafsson.
The government must decide on a monetary policy for Iceland, Flanagan said. It is necessary to reach economic stability, abolish currency restrictions and lower the policy rate. Then inflation is likely to drop, Flanagan argued, adding that although economic growth had decreased rapidly after the fall of the banks, economic recovery is not far away, Fréttabladid reports.
“The agreement between the IMF and the government of Iceland does not include a final arrangement of monetary issues, but it might do that at some point since Iceland should have a powerful framework of policies at the end of the agreement,” Flanagan replied in response to Fréttabladid’s request.
“However, it is a matter that should be dealt with after more urgent matters have been taken care of, such as the complicated project of reestablishing the banking system,” Flanagan added. “When the options of a monetary policy will be thoroughly discussed we can offer technical advice but in the end the decision is for Icelanders to make.”
Vilhjálmur Egilsson, managing director of the Confederation of Icelandic Employers (SA), is also calling for a new monetary policy.
“I believe that the policy that has been followed until now, to increase the policy rate and attract funds under a false pretext and raise the exchange rate of the króna out of proportion, is a time that has come to an end,” Egilsson said.
Halldór Grönvald, vice managing director of the Confederation of Labor (ASÍ), said the only way forward in terms of a new monetary policy is to apply for membership to the European Union and declare that Iceland’s goal is to adopt the euro as currency.
“We believe it is of utmost importance that this declaration is made as soon as possible because it will immediately influence the interest terms that are offered to the state and companies,” Grönvald reasoned. “It will influence the will of foreign claimants […] to work with us on reconstructing the economy.”