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Prime Minister's Office

Policy Statement

Policy Statement by the Prime Minister of Iceland, Davíð Oddsson
October 2, 2002

    Mr. Speaker of the House

    The final session of the present parliamentary term is now beginning. Economic pundits and forecasting institutions often bear a grudge against the last parliamentary session before an election. Politicians become less responsible than usual then, weaker than usual towards lobbyists and perhaps even weaker towards all kinds of overbidding in treasury outlays than usual. It is sometimes said that the treasury never has as few friends in parliament as during an election year. Unfortunately there is some truth in this kind of talk about weak will and overbidding in the final months before an election, for which we all bear some responsibility. It is also my experience that an election-year parliament sees more sensationalism, as it is called when minor matters of the day are blown up out of all proportion, and constructive debate tends to come off rather poorly under such circumstances. Of course we can find fault with this and people have to exercise restraint. It should be remembered, however, that parliament is not just a legislative institution, although this is its most dignified and important role. A parliament worthy of the name must also be the forum of the day and the arena of political conflict, where arguments are pitted against each other, ideals colour the dialogue and members of parliament prove to themselves and to others that they are not indifferent to the course that Icelandic affairs are taking. In fact it is not such a bad thing that these aspects of parliament are more prominent than usual when it meets just before a general election.

    Individual ministers and the government as a whole want to have a sizeable share of the parliamentarians' time for purely legislative work during the coming winter, because many matters are being sponsored by the majority. Presumably, individual government and opposition members will also have numerous matters to present. We will therefore need to use our time well during this short session and under such conditions it is good to have an assertive speaker of the house.

    At the start of each parliament people tend to wonder which issues will be the most prominent. It is clear that the budget and economic matters will overshadow all others until the Christmas recess. There is good reason, after all. The leaders of the political parties met up for a television debate the other day, but as it turned out, economic issues were hardly taken onto the agenda. The explanation given was that there was nothing happening in those issues, as it was put. Nothing could be further from the truth. Major events are taking place in the economy. Events that few people foresaw, not even those who were supposed to have the most knowledge and best conditions for scrutinising Iceland's economic future. Let us consider a couple of fairly recent examples. Some 18 months ago the National Economic Institute forecast that the current account deficit for 2001 would be ISK 72.2 billion, but it turned out to be less than half that figure. Just a year ago the same institution forecast that the deficit would be ISK 46 billion in 2002, but the outlook today is that it will be zero! And just eight months ago a debate was demanded here in parliament because of the threats facing the economy. The proposer of the motion then said, and I quote with the speaker's permission: "Was it not definitely before last Christmas, Mr. Speaker, that the Government described how inflation would decrease slowly but surely, and was it not before Christmas that the Government also said scope was being created for cutting interest rates when the króna would strengthen? Yes, Mr. Speaker. If my memory serves me correctly, it was precisely before last Christmas. But the Government, like so many people regarding this point, unfortunately didn't get that present for Christmas." The same man also said: "Judging from the price rises that generally take place at this time of year, there is nothing to suggest that we will end up within the labour market's price target. Who says that? Not just the leader of the Social Democratic Alliance but the director of the National Economic Institute says it is extremely unlikely, which is why we are arranging this debate." At least someone had a nice feast for Christmas, anyway, because it is not often that a politician has to eat his own words by such platefuls as in this case.

    And the leader of the Left-Green Party considered that one of the main economic problems was that the Prime Minister of Iceland was out of touch with reality and at the stage of economic rejection, as the implication was. He said, and I quote: "All the messages now being delivered by the Icelandic economy concerning the current account deficit, price developments, the exchange rate and interest rates are messages of instability, uncertainty and perils. But the honourable Prime Minister is true to form as ever, he doesn't pay any heed to that sort of thing, changes his economic advisors as needed and puts on new sunglasses even when it's pouring with rain." And now we can't help asking: Where are the messages of instability, uncertainty and perils? Doesn't the leader of the Left-Greens realise that it is quite a comical sight to stroll around in a raincoat with an umbrella up, in blazing sunshine and fine weather. The opposition claimed inflation was back in full swing and the current account deficit was uncontrollable. They saw no signs of the exchange rate strengthening and interest rates going down. For politeness' sake I shall not discuss here the famous ticking time-bomb which was often referred to. But what is the position now and what is the outlook? Peace was successfully secured in the labour market, contrary to the aforementioned forecasts. Inflation has been brought into line with the average among Iceland's neighbours. There will not be any contraction in GNP this year, notwithstanding the forecast, and fairly good growth is now expected next year, even without allowing for any hydropower development projects. And the uncontrollable current account deficit will be zero this year and next year, which means, after allowing for foreign inflation, that the current account will actually be in surplus. Another important point is that national saving is on the increase again. All these factors will ensure that real wages will increase by 2% next year, the ninth consecutive year that it has grown. This is unparalleled in Icelandic history. Isn't it safe for some people to swap their Wellington boots for more comfortable footwear and put down their umbrellas?

    Mr. Speaker:

    In recent years, there has been increasing consultation between the government and the senior citizens' national organisation. However, spokesmen for the elderly have criticised the fact that, although consultation has admittedly increased, they have invariably been involved in the decision-making process at too late a stage and have sometimes virtually been presented with a fait accompli. Now a bold effort has been launched to rectify this situation, so that leaders of the senior citizens' national organisation and the government will move in step in their preparatory work. Instead of making a short-term arrangement, a settlement will be attempted in the form of an agreement which will point the way ahead for the years to come. I am in no doubt that both sides are embarking on this cooperation with total integrity. It is important for it to produce reasonable results, because this working model can then be followed through in the cooperation between these two sides in the future, and also tried out in other areas.

    Mr. Speaker:

    The Minister of Health has decided to launch a comprehensive review of health service legislation, partly with reference to four recent reports by the State Auditor. When the budget for 2000 was being debated in autumn 1999, the State Auditor was consulted specially and assigned to examine the operating costs of health institutions relative to the budget. Subsequently, the operating deficit of these institutions (including the National Hospital) was cleared and total outlays, as estimated by the institutions themselves, were used as the basis for the allocations made in the 2000 budget. Only two years after this action, which was supposed to give their finances a clear start again, everything seems to have gone back to its old course. If the total budget outlays to the National Hospital and City Hospital for 1997 are compared with those in the budget for 2002, they have gone up by 65-70%, which is the equivalent of a 10-11% annual increase.

    Outlays on healthcare are high in Iceland compared with other countries, no matter which criterion is used to measure them. We want to have our health system open to everyone and provide both extensive and quality service. The budget for 2002 allocates almost ISK 60 billion to health issues. This is one-quarter of total treasury outlays. It is therefore of massive importance for everyone in Iceland to use these funds well and promote cost-effective operation. The health system is not above criticism and in fact it is irresponsible to claim that the sector is starved of funding on a vast scale,. We must find explanations for what has gone amiss before we demand even more money from the treasury. It simply won't do to keep contributing large amounts of funds to solve an operating problem which rears its head again the moment our backs are turned.

    Mr. Speaker:

    Enormous advances have been made in Iceland's transport network. Safety has improved substantially, travelling distances have been cut and transportation costs have been reduced as a result. Major projects lie ahead in this field, as has been announced. More than 90% of traffic in Iceland is now on permanently surfaced roads. It will be very expensive to bring in the remaining 10%. But plans have been drawn up and there is a strong willingness to follow them through.

    Following a proposal by the Minister of Agriculture, it has been decided that the Government will begin talks shortly with dairy and sheep farmers. The agricultural operating environment changes rapidly and in Iceland we no longer control such things entirely for ourselves. It is important to support the basis of domestic agricultural production with greater competition, among other things by boosting the educational and research aspects of Icelandic agriculture and strengthen the position of Icelandic farmers in other ways.

    The Minister for the Environment led Iceland's participation at the recent global conference in South Africa. Iceland unmistakeably succeeded in putting its viewpoints across and Iceland's delegation took the initiative in discussions concerning important issues such as the ocean and renewable energy in a broad context.

    Mr. Speaker:

    Iceland now ranks with the world's leading nations in terms of living standards. A solid educational system is one of the main reasons that we have produced such results, and our performance is interesting in an international context. Solid education increases the nation's flexibility in global competition. Investment in education and culture therefore yields ample and secure returns.

    The Government will continue to emphasise improving nationwide access to a wide range of standard education and lifelong learning. This winter, for example, high-speed Internet connections will be installed to secondary schools and lifelong learning institutions, proposals will be formulated for a university-level college at Egilsstaðir and so will general ideas for an Internet university.

    Projects of this kind are particularly well suited to the conditions faced by a small nation living in a large country, and to the well known national predilection for using information and telecom technology solutions everywhere.

    The Minister of Justice will introduce a new bill about children and another tightening up provisions that deal with sexual offences against children, to mention two issues from her agenda. The most expensive projects, however, involve a new coastguard vessel and a new prison, and it is hoped that these will be launched next year.

    On the initiative of the Minister for Social Affairs, a special drive is now under way to increase the supply of rental accommodation for low-income individuals. Over the next four years, six hundred rental accommodation apartments will be built over and above the four hundred which it has already been decided to build annually. In all, this will make two thousand and two hundred apartments in only four years.

    Over the past few years the government has greatly stepped up its outlays to people with disabilities. Major reforms have taken place in housing for people with disabilities and good cooperation has been established between the Government and the Disabled Persons' Housing Fund on such issues.

    Mr. Speaker:

    In the next few weeks a milestone in European post-Cold War history is pending with the next round of enlargement of NATO and the start of the European Union's enlargement process. The enlargement of the EU into Eastern Europe will add new countries to the European Economic Area which is covered by the EEA Agreement. The Government of Iceland is therefore closely monitoring the enlargement process and has supported it unequivocally. The reason is the EEA Agreement, and not least the importance of the EU enlargement for peace and welfare throughout Europe. Ever since immediately after the end of the Cold War, it has been known that major reforms in Central and Eastern European countries, and their economic welfare and stability, depended on their having EU membership within sight. The enlargement process has been delayed excessively, so we must hope now that it is finally becoming a reality.

    NATO began its enlargement into Eastern Europe just over three years ago when Poland, the Czech Republic and Hungary were granted membership. The NATO Summit in Prague this November plans to decide to invite more Central and Eastern European states to join the Alliance. Now there is generally thought to be a good probability that these will include the three Baltic States, whose membership of NATO the Icelandic government has supported in particular, as is known. The Baltic States were annexed into the Soviet Union by military occupation. Thus the Baltic States' membership of NATO is very important symbolically, since it will confirm that the end of the Cold War did not lead to a new division of the continent, as would have happened if the Baltic states had been excluded from NATO. Thus their membership of the Alliance heralds the dawn of a new era in Europe.

    The aftermath of the terrorist attacks on the USA last year is still going on. Considerable success has been achieved in the fight against global terrorism, but this is a complex and time-consuming process which calls for persistence and steadfastness. A key factor in that fight is to prevent weapons of mass destruction from falling into the hands of terrorists. The events in the United States showed that there are terrorist organizations which would not flinch from using weapons of mass destruction if they were to acquire them. But action is also needed to prevent dictators and tyrants from being able to perpetrate evil deeds in the belief that such weapons would protect them, or using such weapons or giving them to terrorists.

    The international community must not sit by and watch while Iraq is definitely engaged in the production of weapons of mass destruction. The Iraqi regime has unleashed its military forces on its neighbours and made war on its own citizens, and continues to threaten international peace and security. Iraq must be disarmed and prevented from acquiring nuclear weapons, and the best way to do so needs to be discussed at the United Nations. The United Nations must deal with this issue, because it is precisely the resolutions of the UN that Baghdad is violating. As Iceland's Minister for Foreign Affairs has pointed out, the credibility of the United Nations is at stake. Should the Security Council be unable to tackle as dangerous a threat as that posed by the Iraqi regime and its provocations, other courses of action cannot be ruled out.

    At the beginning of this month Iceland's defence arrangements were changed whereby command of the Iceland Defence Force was transferred to the US European Command, which is located in Stuttgart, Germany. This change has been made because of a new military organizational structure in the USA which was decided following the events of September 11 a year ago. Representatives of the US military have held meetings with Iceland's Foreign Minister and the officials responsible for these issues and explained the changes to them in more detail. Nothing has emerged in those conversations to give any grounds for assuming that Iceland's defence capability or the activities of the Iceland Defence Force will be cut back from present levels.

    Mr. Speaker:

    The Icelandic state supports domestic political activity quite generously and there is not much scope for stepping up this support further without having to describe the political parties here as state enterprises. I mention this because party political finances occasionally come up for discussion and some people, on astonishingly flimsy grounds, have tried to adopt a holier-than-thou attitude. But their endless announcements about opening up this part of their own affairs have been just empty words, or at best meaningless words. I shall have an opportunity to dwell on this subject later. I have mentioned the idea of a law banning businesses from supporting political parties. Such ideas have not been welcomed, for some reason. Surely we are open for discussions of other solutions. It is intolerable when political charlatans repeatedly try to make the activities of political parties look suspect, without being able to cite a single example to support their claims. The crucial point is to have clear and comprehensible rules about political parties' finances. Ways of dealing with deviations from the rules must be purposeful. What constitutes a grant must be clear. Which type of favours for political parties, apart from direct monetary contributions, should be classified as grants? This needs to be clarified. But the essential point is surely to examine these matters frankly and honestly, not in a game of political blind man's buff, as has been the case in recent years.

    Ladies and Gentlemen:

    It speaks volumes that respected financial institutions can now hold impressive discussions of economic developments under the title "The recession that never came." The Government was reproached for its optimism and for not wanting to swallow the stale and sickly talk of recession that was being served up. Macroeconomic forecasts show a brighter time ahead on the economic front, even brighter than this optimistic Government dared to hope. We will continue to have good opportunities for remaining among the top nations in terms of both living standards and welfare. Those are opportunities that we are determined to seize for the benefit of our country and our people.


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