
NOTE: This article is more than 5 years old. 27 October 1999 / Prime Ministers Office The British-Icelandic Chamber of Commerce Speech by the Prime Minister of Iceland Davíð Oddsson at a lunch hosted by The British-Icelandic Chamber of Commerce October 27 1999 Honourable Guests, Ladies and Gentlemen: Iceland and Britain have a long tradition of particularly close and positive relations, in the fields of politics, trade and culture alike. Both nations are founding members of NATO, both belong to the European Economic Area and they are engaged in a wide range of cooperation in various international flora. The links between Iceland and the British Isles were established early in history. Most of the settlers of Iceland in the ninth century were Norwegian Vikings. On their way, many of them stopped in Ireland, Scotland, the Hebrides, Orkney, the Shetland Isles and elsewhere, and even lived in these islands for some time. It is clear that the settlers' Scandinavian blood was mixed here in the British Isles on its way to Iceland, which some people would say helped to create a distinctive new breed. In fact, our picture of the past is changing somewhat with rapid technological advances. Carbon-14 dating has shown that human relics found in Reykjavík, the capital of Iceland, are from the middle of the seventh century, which is long before the Scandinavian settlement began. These ruins could have been left by Irish and Scottish monks who lived in Iceland for some time and devoted themselves to the religious life and, and did not breed. Today, almost everyone in Iceland has a reasonable command of the English language. English has now taken over from Danish as the first foreign language that children learn in schools in Iceland. Above all, however, it is information technology, the media, films and music that are the most effective teachers – perhaps even too effective, some people think. We Icelanders, however, preserve our own language very successfully, for example by coining native words for all new concepts. And there certainly are plenty of new concepts at the moment, with the rapid advances that are being made in technology and science. For as long as we Icelanders take good care of our own language, the influence of English is largely positive. Amidst all these changes it is interesting to recall that Britain was the first place outside Iceland to offer a degree course in modern Icelandic. Of course, this doesn't mean that we hope the trend will be reversed and people in Britain will all become fluent speakers of Icelandic. However, we very much appreciate this initiative. Our nations are joined together by other cultural activities as well. One form that our literary relations take is the many translations between our two languages. Two years ago the Egill Skallagrímsson Fund was established with the role of supporting Icelandic arts and culture in Britain. A number of theatrical and musical events have already been staged under the auspices of the fund. The Icelandic Embassy here invites Icelandic artists to show their works in its reception room. Also, "Mare's Nest Publishing" here in London has been publishing a number of English translations of contemporary Icelandic literature. The many Icelandic students in further education in the UK play a vital part in maintaining active and flourishing cultural links between our countries. It is not least art students who come here in large numbers from Iceland. I don't think there can be many places where a greater proportion of the Icelandic community are artists. Ladies and Gentlemen: Throughout the second half of this century, the United Kingdom has always been Iceland's largest export market, apart from the period when our countries were in dispute about fishing in the waters around Iceland. Indeed, it is primarily seafood and other marine products that we Icelanders export to the UK – during the current decade they have accounted for between 70 and 90 percent of our exports here in terms of value. The volume of imports from Britain to Iceland also runs high, at some to 50-70% of the flow of goods from Iceland here. Iceland's imports of British merchandise has increased somewhat since the European Economic Area went into effect, and the share of British goods in Iceland's European basket has been growing too in recent years. But merchandise is only half the story. Trade in services is continually expanding. In particular, we conduct trade in communications and travel. Now, for example, there are 16 scheduled weekly flights from Iceland to cities in the UK, in addition to frequent charter flights. This is a great change from the situation only a few years ago. From 1990 to 1997, the number of Britons travelling to Iceland increased by two-thirds to just over 23 thousand, or 12% of the total number of visitors. A survey last year on Icelanders' travel habits revealed that the United Kingdom was the most popular individual country among them. In 1996, for example, 25 thousand Icelanders went to Britain, which is 16% of all travel from the country. I understand that traffic has been increasing still further in both directions since then. At our embassy here in London, under the new ambassador Mr. Thorsteinn Pálsson, who was a government minister in Iceland for many years, business is always an important issue. Our focus on business and marketing is increasing, in line with the policy of the government and at the instigation of the Minister for Foreign Affairs, Mr. Halldór Ásgrímsson. For example, the Embassy tries to have the closest possible contact with the so-called "83 Group," which comprises the heads of the leading Icelandic companies here in the UK. In October 1996 a special Iceland Day was held with a general trade promotion arranged by the Minister of Commerce, Mr. Finnur Ingólfsson. Iceland was promoted there as an attractive investment option for foreign investors. In 1997, the Embassy and the Iceland Chamber of Commerce took the initiative in establishing the organization which is hosting this meeting today, the British-Icelandic Chamber of Commerce. There are now more than two hundred registered members of the Chamber. One of its initiatives has been to appoint a special business representative who now works under its auspices and at the same time at the Embassy. I understand that this move has led to great advances in regular trade and cultural relations between our countries, which are now better organized and much clearer than before. This is to be welcomed. Ladies and Gentlemen: Iceland's close relations with Britain will become even more important as the EU continues its integration process. Although geologically speaking Iceland is located on the border where the European and American continents meet, Icelanders regard themselves entirely as Europeans. This is logical in light of the nation's history and culture. In Europe, too, Iceland has greater economic and political interests to safeguard than anywhere else. Two-thirds of Iceland's merchandise exports and imports involve European countries. The European Economic Area agreement grants Iceland virtually unlimited access to the EU single market. Iceland therefore has no urgent interests which compel it to apply for membership of the EU now, any more than five years ago when it decided not to accept the EU's invitation to the EFTA countries to join. On the other hand, membership would have severe drawbacks, partly because of the EU's Common Fisheries Policy. Iceland cannot afford any other fisheries management system than one which generates the greatest possible wealth for the nation. At the same time, fortunately perhaps, we cannot even entertain the idea of granting subsidies to the fisheries sector, in the way that the EU does to an immoderate degree. The Icelandic public at large does not have the feeling that, by being outside the EU, Iceland is somehow isolated from Europe. We have various bridges linking us to the Union besides NATO, the Western European Union, EFTA and the EEA, including participation in Nordic cooperation, which is very close and involves five countries in all, three of which are members of the EU. When the EEA Agreement was being made it was sometimes claimed that Iceland would be left behind in economic terms by remaining outside the EU, but that did not prove to be the case. On the contrary, the economy has been booming in recent years. We do, of course, follow closely developments within the EU and its enlargement is of direct interest to us, since new members of the Union also become members of the EEA. However, membership by Iceland is not and cannot be ruled out ones and for all. For example, we will continue to keep a close watch on the development of monetary cooperation in Europe. As a non-EU state, Iceland is of course not a member of the Euro. But, if the introduction of the common currency proves successful it will have a positive impact for us, since our trade with European countries is greatly simplified by using fewer different currencies than before. At this stage, however, it would be impossible for us to adopt the new currency, because our economic cycle is completely different from that of most of the Euro countries. We have been striving for some time to control overheating of our economy, for example by raising interest rates, while governments in most of "Euroland" have been trying to encourage growth, and interest rates there have thus fallen this year. However, if Britain were to join the Euro, and even Denmark and Sweden too, some changes would conceivably be needed in our monetary policy. At present, however, our economic interests are well safeguarded with the current arrangement. For this reason and many others, the fact remains that staying outside the EU does not at present entail any measurable costs, while joining the Union would bring major disadvantages. An additional point is that at the moment, there unfortunately seems to be a general trend towards greater centralization of power in Europe, with less influence by individual states over their own affairs. For as long as this is the case, the chances of Iceland becoming more interested in membership are unlikely to increase. Membership of NATO, on the other hand, is one of the cornerstones of Iceland's foreign policy. In keeping with increased demands towards NATO in the post-Cold War period, Iceland has stepped up its involvement in the Alliance's activities, among other things by sending doctors, nurses and policemen to take part in peacekeeping operations in Bosnia and Kosovo. Iceland firmly supports the further enlargement of NATO. Its enlargement and that of the European Union offer unique opportunities to shape the history of the whole continent in the same way that these organisations have already done in Western Europe. Iceland has repeatedly expressed support for the development of a Common European Security and Defence Policy, given that this does not weaken the transatlantic link and that the interests of the European NATO allies outside the EU are ensured. Ladies and Gentlemen: Iceland has made preparations for the next round of WTO talks. Important interests will be at stake in these talks, which will strive to adapt international rules and norms so that they take account of greater globalization and demands for sound business practices. We can only approach this task with open minds, both bearing in mind the global good of free trade and also considering the extent to which it involves our main economic sectors in Iceland. For example, Iceland has been a leading advocate of abolishing fisheries subsidies, which undermine systematic fisheries management. I would also like to point out to you that this spring, a law was passed which allows specialized international trading centres to be established in Iceland. The idea is to take full advantage of Icelanders' knowhow and skills in trading outside their Exclusive Economic Zone, initially focusing on fisheries and registration of specialized enterprises. If the scope offered by this law is followed through effectively, it will mean a pure addition to the business already conducted in Iceland. For example, it has come to light that Icelandic companies already use trading facilities outside Iceland's EEZ to a considerable extent where such possibilities are at hand. The simple action of attracting such business back to Iceland would produce major gains. Ladies and Gentlemen: Iceland's economy is not large, any more than its population. But average incomes are extremely high by international standards and so therefore is real disposable income. Iceland's prosperity is based not least on our success in utilizing our natural resources of fish and energy. Most important, however, are the market reforms, fiscal prudence and economic stability of recent years. These reforms, which have aimed to strengthen competition and clarify the rules of the game in the economy, have led to a sharp jump in productivity. At the same time, prices have been stable and many of the economy's external conditions have been favourable. Foreign exchange controls have been abolished and the exchange rate and interest rates are determined by market forces. Privatization is in full swing and competition has grown in various areas. Large-scale development is taking place in power-intensive industry which uses environmentally friendly hydropower, and the main fish stocks, in particular cod, are gradually growing. Such strong basic sectors and a secure economic environment have also prompted expansion in many other sectors of the economy. Iceland's economic growth has thus been broadly based. As a result of all this, as most of you may know, economic developments in Iceland have been unusually favourable in recent years. Rapid economic growth, price stability, ample employment and sharply improved living standards have all coincided. Over the last four years, economic growth has averaged more than 5 per cent per year, more than twice that among trading partners, inflation has been similar to that in industrial countries, unemployment has been eliminated and real disposable income per capita has risen by 20 per cent. Few if any parallels to this growth phase can be found in the history of the Icelandic Republic. Obviously, there are limits to how long economic growth can be sustained at the exceptionally rapid pace of the last four years, without bottlenecks occurring in the economy. The stage has been reached where various factors of production in the economy are fully utilized and the increase in productivity simply cannot keep pace, impressive as it may be. Property and commodity prices have been creeping up somewhat this year, faster than we can tolerate. Inflation is measured in a somewhat different manner in Iceland from the method used in the EU, mainly because property prices are included in the consumer price index. This makes the inflation figures much higher in Iceland than they would be if we used the usual indexing method, since property prices have soared in the Reykjavík area in the recent months. Nevertheless, inflation in Iceland is above the preferable level. Our answer is to slow things down a little, although without slamming on the brakes. Short-term interest rates have been raised in order to cut back credit supply and credit expectations. Market expectations are still optimistic, however, since long-term interest rates have not risen, but rather have continued to fall this year. The budget surplus this year, and the considerable surplus proposed for next year, remove money from economic activity and various construction projects have been postponed. Our aim is to achieve a soft landing in the economy. At the same time, saving and thrift are made more beneficial with a particularly systematic moves. Likewise, it can be pointed out that one of the purposes behind the sale of state enterprises is to curb money supply. Ladies and Gentlemen: General elections to Iceland's Parliament were held in May this year. The government of the Independence Party and the Progressive Party was returned to office then and will continue to work in the spirit of its previous term. That is, to ensure economic stability, create conditions for continuing growth and increase national saving. Price stability and a better competitive position for Icelandic industry are a prerequisite for new jobs to cater for growth in the labour force. Exchange rate, monetary and fiscal policies will be based on achieving these objectives. One step on that path is to transfer the Central Bank from the Ministry of Commerce to the Office of the Prime Minister, as the Prime Minister is responsible for coordinating economic policy. The government believes it is essential to maintain fiscal balance and systematically reduce Treasury debt. Those debts are now being repaid for yet another year. The Treasury debt-to-GDP ratio is assumed to be close to 30 per cent at year-end in 2000, down from 51 per cent only four years ago. It is our intention to institute systematic measures for boosting the level of national savings. We are at present relatively pleased with the state of our private pension system. A priority for us will nevertheless be to encourage the public to allocate larger sums towards pension savings. Those funds will therefore keep on increasing their investments on a large scale. Tax concessions also remain in place for individuals who make investments in shares. Ladies and Gentlemen: From Iceland's point of view, the future is bright. In recent years we have opened up our economy to increased globalization and international trade as I mentioned before. Two financial crises have hit the world in the past two years, one originating in Southeast Asia and the other in Russia. Admittedly our main trading partners are not in these regions, but an imprudent economic framework in Iceland could easily have caused these events to have fairly serious consequences for us. This, however, did not happen our open but small economy firmly withstood both these events. This fact makes us even more determined than ever, and encourages us to maintain and increase still further the flexibility and freedom within our economy. For instance, we have undertaken the task of curbing over-regulation in our economy and reducing the excessive burden of governmental monitoring on businesses. The state of our business environment is already tolerable by international standards. The latest Global Competitiveness Report, as discussed in last week's issue of the Economist, shows that Iceland is the third easiest country in the world to set up new businesses. It is probably no coincidence that foreign investment in Iceland has been increasing rapidly in recent years, even though outside players are still relatively small participants in Icelandic business. The task ahead of us will therefore be to continue to make Iceland an attractive business partner, for Britons and people of other nationalities. I hope the honourable guests here today will follow this evolution closely and with interest, for the benefit of both parties. Tags Prime Ministers Office Go back

NOTE: This article is more than 5 years old.

27 October 1999

Prime Ministers Office

The British-Icelandic Chamber of Commerce

Speech by the Prime Minister of Iceland
Davíð Oddsson
at a lunch hosted by
The British-Icelandic Chamber of Commerce
October 27 1999

Honourable Guests, Ladies and Gentlemen:
Iceland and Britain have a long tradition of particularly close and positive relations, in the fields of politics, trade and culture alike. Both nations are founding members of NATO, both belong to the European Economic Area and they are engaged in a wide range of cooperation in various international flora.

The links between Iceland and the British Isles were established early in history. Most of the settlers of Iceland in the ninth century were Norwegian Vikings. On their way, many of them stopped in Ireland, Scotland, the Hebrides, Orkney, the Shetland Isles and elsewhere, and even lived in these islands for some time. It is clear that the settlers' Scandinavian blood was mixed here in the British Isles on its way to Iceland, which some people would say helped to create a distinctive new breed.

In fact, our picture of the past is changing somewhat with rapid technological advances. Carbon-14 dating has shown that human relics found in Reykjavík, the capital of Iceland, are from the middle of the seventh century, which is long before the Scandinavian settlement began. These ruins could have been left by Irish and Scottish monks who lived in Iceland for some time and devoted themselves to the religious life and, and did not breed.

Today, almost everyone in Iceland has a reasonable command of the English language. English has now taken over from Danish as the first foreign language that children learn in schools in Iceland. Above all, however, it is information technology, the media, films and music that are the most effective teachers – perhaps even too effective, some people think. We Icelanders, however, preserve our own language very successfully, for example by coining native words for all new concepts. And there certainly are plenty of new concepts at the moment, with the rapid advances that are being made in technology and science. For as long as we Icelanders take good care of our own language, the influence of English is largely positive. Amidst all these changes it is interesting to recall that Britain was the first place outside Iceland to offer a degree course in modern Icelandic. Of course, this doesn't mean that we hope the trend will be reversed and people in Britain will all become fluent speakers of Icelandic. However, we very much appreciate this initiative.

Our nations are joined together by other cultural activities as well. One form that our literary relations take is the many translations between our two languages. Two years ago the Egill Skallagrímsson Fund was established with the role of supporting Icelandic arts and culture in Britain. A number of theatrical and musical events have already been staged under the auspices of the fund. The Icelandic Embassy here invites Icelandic artists to show their works in its reception room. Also, "Mare's Nest Publishing" here in London has been publishing a number of English translations of contemporary Icelandic literature.

The many Icelandic students in further education in the UK play a vital part in maintaining active and flourishing cultural links between our countries. It is not least art students who come here in large numbers from Iceland. I don't think there can be many places where a greater proportion of the Icelandic community are artists.

Ladies and Gentlemen:
Throughout the second half of this century, the United Kingdom has always been Iceland's largest export market, apart from the period when our countries were in dispute about fishing in the waters around Iceland. Indeed, it is primarily seafood and other marine products that we Icelanders export to the UK – during the current decade they have accounted for between 70 and 90 percent of our exports here in terms of value. The volume of imports from Britain to Iceland also runs high, at some to 50-70% of the flow of goods from Iceland here. Iceland's imports of British merchandise has increased somewhat since the European Economic Area went into effect, and the share of British goods in Iceland's European basket has been growing too in recent years.

But merchandise is only half the story. Trade in services is continually expanding. In particular, we conduct trade in communications and travel. Now, for example, there are 16 scheduled weekly flights from Iceland to cities in the UK, in addition to frequent charter flights. This is a great change from the situation only a few years ago. From 1990 to 1997, the number of Britons travelling to Iceland increased by two-thirds to just over 23 thousand, or 12% of the total number of visitors. A survey last year on Icelanders' travel habits revealed that the United Kingdom was the most popular individual country among them. In 1996, for example, 25 thousand Icelanders went to Britain, which is 16% of all travel from the country. I understand that traffic has been increasing still further in both directions since then.

At our embassy here in London, under the new ambassador Mr. Thorsteinn Pálsson, who was a government minister in Iceland for many years, business is always an important issue. Our focus on business and marketing is increasing, in line with the policy of the government and at the instigation of the Minister for Foreign Affairs, Mr. Halldór Ásgrímsson. For example, the Embassy tries to have the closest possible contact with the so-called "83 Group," which comprises the heads of the leading Icelandic companies here in the UK. In October 1996 a special Iceland Day was held with a general trade promotion arranged by the Minister of Commerce, Mr. Finnur Ingólfsson. Iceland was promoted there as an attractive investment option for foreign investors. In 1997, the Embassy and the Iceland Chamber of Commerce took the initiative in establishing the organization which is hosting this meeting today, the British-Icelandic Chamber of Commerce. There are now more than two hundred registered members of the Chamber. One of its initiatives has been to appoint a special business representative who now works under its auspices and at the same time at the Embassy. I understand that this move has led to great advances in regular trade and cultural relations between our countries, which are now better organized and much clearer than before. This is to be welcomed.

Ladies and Gentlemen:
Iceland's close relations with Britain will become even more important as the EU continues its integration process. Although geologically speaking Iceland is located on the border where the European and American continents meet, Icelanders regard themselves entirely as Europeans. This is logical in light of the nation's history and culture. In Europe, too, Iceland has greater economic and political interests to safeguard than anywhere else. Two-thirds of Iceland's merchandise exports and imports involve European countries. The European Economic Area agreement grants Iceland virtually unlimited access to the EU single market. Iceland therefore has no urgent interests which compel it to apply for membership of the EU now, any more than five years ago when it decided not to accept the EU's invitation to the EFTA countries to join. On the other hand, membership would have severe drawbacks, partly because of the EU's Common Fisheries Policy. Iceland cannot afford any other fisheries management system than one which generates the greatest possible wealth for the nation. At the same time, fortunately perhaps, we cannot even entertain the idea of granting subsidies to the fisheries sector, in the way that the EU does to an immoderate degree.

The Icelandic public at large does not have the feeling that, by being outside the EU, Iceland is somehow isolated from Europe. We have various bridges linking us to the Union besides NATO, the Western European Union, EFTA and the EEA, including participation in Nordic cooperation, which is very close and involves five countries in all, three of which are members of the EU. When the EEA Agreement was being made it was sometimes claimed that Iceland would be left behind in economic terms by remaining outside the EU, but that did not prove to be the case. On the contrary, the economy has been booming in recent years. We do, of course, follow closely developments within the EU and its enlargement is of direct interest to us, since new members of the Union also become members of the EEA. However, membership by Iceland is not and cannot be ruled out ones and for all.

For example, we will continue to keep a close watch on the development of monetary cooperation in Europe. As a non-EU state, Iceland is of course not a member of the Euro. But, if the introduction of the common currency proves successful it will have a positive impact for us, since our trade with European countries is greatly simplified by using fewer different currencies than before. At this stage, however, it would be impossible for us to adopt the new currency, because our economic cycle is completely different from that of most of the Euro countries. We have been striving for some time to control overheating of our economy, for example by raising interest rates, while governments in most of "Euroland" have been trying to encourage growth, and interest rates there have thus fallen this year. However, if Britain were to join the Euro, and even Denmark and Sweden too, some changes would conceivably be needed in our monetary policy. At present, however, our economic interests are well safeguarded with the current arrangement. For this reason and many others, the fact remains that staying outside the EU does not at present entail any measurable costs, while joining the Union would bring major disadvantages. An additional point is that at the moment, there unfortunately seems to be a general trend towards greater centralization of power in Europe, with less influence by individual states over their own affairs. For as long as this is the case, the chances of Iceland becoming more interested in membership are unlikely to increase.

Membership of NATO, on the other hand, is one of the cornerstones of Iceland's foreign policy. In keeping with increased demands towards NATO in the post-Cold War period, Iceland has stepped up its involvement in the Alliance's activities, among other things by sending doctors, nurses and policemen to take part in peacekeeping operations in Bosnia and Kosovo.

Iceland firmly supports the further enlargement of NATO. Its enlargement and that of the European Union offer unique opportunities to shape the history of the whole continent in the same way that these organisations have already done in Western Europe. Iceland has repeatedly expressed support for the development of a Common European Security and Defence Policy, given that this does not weaken the transatlantic link and that the interests of the European NATO allies outside the EU are ensured.

Ladies and Gentlemen:
Iceland has made preparations for the next round of WTO talks. Important interests will be at stake in these talks, which will strive to adapt international rules and norms so that they take account of greater globalization and demands for sound business practices. We can only approach this task with open minds, both bearing in mind the global good of free trade and also considering the extent to which it involves our main economic sectors in Iceland. For example, Iceland has been a leading advocate of abolishing fisheries subsidies, which undermine systematic fisheries management.

I would also like to point out to you that this spring, a law was passed which allows specialized international trading centres to be established in Iceland. The idea is to take full advantage of Icelanders' knowhow and skills in trading outside their Exclusive Economic Zone, initially focusing on fisheries and registration of specialized enterprises. If the scope offered by this law is followed through effectively, it will mean a pure addition to the business already conducted in Iceland. For example, it has come to light that Icelandic companies already use trading facilities outside Iceland's EEZ to a considerable extent where such possibilities are at hand. The simple action of attracting such business back to Iceland would produce major gains.

Ladies and Gentlemen:
Iceland's economy is not large, any more than its population. But average incomes are extremely high by international standards and so therefore is real disposable income. Iceland's prosperity is based not least on our success in utilizing our natural resources of fish and energy. Most important, however, are the market reforms, fiscal prudence and economic stability of recent years. These reforms, which have aimed to strengthen competition and clarify the rules of the game in the economy, have led to a sharp jump in productivity. At the same time, prices have been stable and many of the economy's external conditions have been favourable. Foreign exchange controls have been abolished and the exchange rate and interest rates are determined by market forces. Privatization is in full swing and competition has grown in various areas. Large-scale development is taking place in power-intensive industry which uses environmentally friendly hydropower, and the main fish stocks, in particular cod, are gradually growing. Such strong basic sectors and a secure economic environment have also prompted expansion in many other sectors of the economy. Iceland's economic growth has thus been broadly based.

As a result of all this, as most of you may know, economic developments in Iceland have been unusually favourable in recent years. Rapid economic growth, price stability, ample employment and sharply improved living standards have all coincided. Over the last four years, economic growth has averaged more than 5 per cent per year, more than twice that among trading partners, inflation has been similar to that in industrial countries, unemployment has been eliminated and real disposable income per capita has risen by 20 per cent. Few if any parallels to this growth phase can be found in the history of the Icelandic Republic.

Obviously, there are limits to how long economic growth can be sustained at the exceptionally rapid pace of the last four years, without bottlenecks occurring in the economy. The stage has been reached where various factors of production in the economy are fully utilized and the increase in productivity simply cannot keep pace, impressive as it may be. Property and commodity prices have been creeping up somewhat this year, faster than we can tolerate. Inflation is measured in a somewhat different manner in Iceland from the method used in the EU, mainly because property prices are included in the consumer price index. This makes the inflation figures much higher in Iceland than they would be if we used the usual indexing method, since property prices have soared in the Reykjavík area in the recent months.

Nevertheless, inflation in Iceland is above the preferable level. Our answer is to slow things down a little, although without slamming on the brakes. Short-term interest rates have been raised in order to cut back credit supply and credit expectations. Market expectations are still optimistic, however, since long-term interest rates have not risen, but rather have continued to fall this year. The budget surplus this year, and the considerable surplus proposed for next year, remove money from economic activity and various construction projects have been postponed. Our aim is to achieve a soft landing in the economy. At the same time, saving and thrift are made more beneficial with a particularly systematic moves. Likewise, it can be pointed out that one of the purposes behind the sale of state enterprises is to curb money supply.

Ladies and Gentlemen:
General elections to Iceland's Parliament were held in May this year. The government of the Independence Party and the Progressive Party was returned to office then and will continue to work in the spirit of its previous term. That is, to ensure economic stability, create conditions for continuing growth and increase national saving. Price stability and a better competitive position for Icelandic industry are a prerequisite for new jobs to cater for growth in the labour force. Exchange rate, monetary and fiscal policies will be based on achieving these objectives. One step on that path is to transfer the Central Bank from the Ministry of Commerce to the Office of the Prime Minister, as the Prime Minister is responsible for coordinating economic policy.

The government believes it is essential to maintain fiscal balance and systematically reduce Treasury debt. Those debts are now being repaid for yet another year. The Treasury debt-to-GDP ratio is assumed to be close to 30 per cent at year-end in 2000, down from 51 per cent only four years ago.

It is our intention to institute systematic measures for boosting the level of national savings. We are at present relatively pleased with the state of our private pension system. A priority for us will nevertheless be to encourage the public to allocate larger sums towards pension savings. Those funds will therefore keep on increasing their investments on a large scale. Tax concessions also remain in place for individuals who make investments in shares.

Ladies and Gentlemen:
From Iceland's point of view, the future is bright. In recent years we have opened up our economy to increased globalization and international trade as I mentioned before. Two financial crises have hit the world in the past two years, one originating in Southeast Asia and the other in Russia. Admittedly our main trading partners are not in these regions, but an imprudent economic framework in Iceland could easily have caused these events to have fairly serious consequences for us. This, however, did not happen our open but small economy firmly withstood both these events. This fact makes us even more determined than ever, and encourages us to maintain and increase still further the flexibility and freedom within our economy. For instance, we have undertaken the task of curbing over-regulation in our economy and reducing the excessive burden of governmental monitoring on businesses. The state of our business environment is already tolerable by international standards. The latest Global Competitiveness Report, as discussed in last week's issue of the Economist, shows that Iceland is the third easiest country in the world to set up new businesses. It is probably no coincidence that foreign investment in Iceland has been increasing rapidly in recent years, even though outside players are still relatively small participants in Icelandic business. The task ahead of us will therefore be to continue to make Iceland an attractive business partner, for Britons and people of other nationalities. I hope the honourable guests here today will follow this evolution closely and with interest, for the benefit of both parties.

The British-Icelandic Chamber of Commerce

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