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Prime Minister's Office

Platform of the Government - Report from the Prime Minister

136th Legislative session of the Althingi, 4 February 2009, 7:50 pm

Mr Speaker, fellow Icelanders.

It can have escaped no one that our country is passing through a deep economic downturn. Within a very brief period, the government has had to act responsibly and determinedly, to keep the wheels of business and industry turning and to reinforce the security net for the nation’s households and families. Nations in our part of the world have enjoyed the greatest success when they have managed to combine social responsibility with utilising the advantages of the market, to benefit public interests rather than individual interests. We have to learn from the mistakes which have brought us to where we are today.

The collapse of the Icelandic financial system has resulted in public turmoil, in protests fuelled by justified anger and, not least, a heightened need for involvement and action. It is my hope that the social unrest we have experienced is now behind us and that we are on the path towards reconciliation. The environment created by the difficult economic situation has fostered fertile social debate. Discussion has been heated, producing a wide variety of ideas and demands for changing the structure of our society. Public involvement has been more extensive than previously known in Iceland.

We have heard the views of a great number of people. In my opinion, it is important for us, as politicians, to find ways to enable as many people as possible to make their voices heard. We must not be so limited by the restraints of party politics that we lose touch with the public. No politician wants to lose touch with those people he or she is serving. Our work requires us to maintain close good contact with the public who elected us to work on its behalf. I am convinced that the tumult of recent months has touched all of us and left a lasting impression. The government which has now taken office was created under highly exceptional circumstances. Public demands for change have had effect and the government will make every effort to channel these voices and the demands made into effective action through its own acts and working practices.

The new coalition of the Social Democratic Alliance and the Left-Green Movement prioritises the following changes for the sake of democracy and greater social justice: Changes to the constitution which will enshrine national ownership of the country’s natural resources, provide for public referenda and a special constitutional assembly, which will open a new chapter in public participation in shaping the structure of government. Furthermore, preparations will get underway on drafting a code of ethics for the Ministerial Offices; legal provisions on the responsibility of ministers, making this comparable to that in neighbouring countries; and new rules on the appointment of District and Supreme Court Judges. 

Electoral laws will be amended to make it possible to vote for individual candidates in national elections, ideally so that these can be implemented in upcoming elections.

All of these changes are intended to increase democracy and the involvement of the general public, as well as to remove all sorts of discrimination which have been criticised. They are clear indications that the demands made by the public in the debate of recent weeks have reached the ears of the authorities and are now being put into practice by the government.

   

Fellow Icelanders.

The past few months have been difficult for all of us. Many people have lost their assets and their jobs, some companies have gone bankrupt while others continue in low gear. All of us need to join hands in an effort to get business and industry moving again, to put the wheels of the economy in motion to improve the situation of businesses, and that of households no less.

In an effort to fight the corruption in our society, we cannot avoid an examination of the connections between the country’s business sector, its economy and its politics. Let us begin this process at once, and in unison. But our actions must be fair and ethical, honouring the basic principle that no one is guilty until proven to be so according to law and proper procedure. We must honour the rights of each individual and take care to ensure that in setting things straight we do not embark on any type of witch hunt. We enjoy the rule of law in this country and neither the government nor members of the Althingi intend to circumvent its basic principles. I would like to emphasize that here this evening.

On the other hand, it is crucial that we succeed in reviving the confidence of the general public in Iceland in its government and economy. Furthermore, we need to regain the respect of others and improve Icelanders’ reputation abroad. No country can prosper without good relations with other nations. There is a direct connection between our image and reputation abroad and the resurrection of the domestic economy. Our financial and regulatory systems need an overhaul. They have failed to achieve their purpose and in so doing have lost their credibility, both towards the wider world and the domestic community.

This is unacceptable, because such parties who do not enjoy the trust of others cannot perform their key roles in the reconstruction. We must face this fact. We politicians are no exception here, which is why it is important to hold elections this spring, giving the politicians a chance to put their case to and receive the verdict of the electorate.

The new government has already set this process in motion and has submitted a bill to Althingi amending the Act on the Central Bank of Iceland. The Board and executive of the Financial Supervisory Authority have resigned and it is important that a new board be appointed for the Authority as soon as possible. The government has requested that the executive of the Central Bank of Iceland step aside as well. The commercial banks have undergone extensive changes, and this process is far from complete.

One of the government’s most important priorities is to ensure that financial institutions have the necessary strength to support the revival of business and industry. In accordance with the economic recovery programme agreed by the International Monetary Fund (IMF) and the government, we are now doing our best to reconstruct the financial system. The programme is proceeding according to schedule and the government will ensure that co-operation with IMF is effective and secure.

The government places emphasis on working concertedly and rapidly to complete the valuation of assets of both the old and the new banks. This has taken more time than anticipated. Once the work is concluded, it will be possible to refinance the banks. Every effort will be made to set the economy in motion again as soon as possible. Companies are struggling with greater difficulties than ever before, including enormous indebtedness, dropping demand and income, an unstable currency and high interest rates.

Clearly, in such circumstances, the banks must proceed with caution. They must at the same time shoulder responsibility for showing discipline towards businesses while participating in economic recovery efforts. The anticipated rapid slowing of inflation should create the premises to cut the policy rate and improve the business environment. Conditions need to be created to enable the relaxing of currency controls and lowering of interest rates as expeditiously as possible.

I expect the government to provide more details of its plans for financial system reconstruction as soon as next week, together with various important measures in this connection. A committee at work under the direction of the Prime Minister’s office, led by Swedish expert Mats Josepsson, will present its first proposals to the government at the end of this week. The objective is to foster the development of healthy financial activities, directed primarily at serving the needs of customers. This should lay the foundation for improving the situation of households and corporates.

A core tenet of the new government’s efforts is to ensure responsible management of economic and monetary affairs. With regard to fiscal matters, the preliminary outlines of the repayment schedule for coming quarters need to be fixed and preparations begun on government budgets for the coming years. The Bill of Legislation introduced in the Althingi to amend the Central Bank Act provides for the establishment of a special Monetary Policy Committee. This committee will make decisions on the use of the Bank’s monetary policy control mechanisms. Such a committee could play a key role in formulating currency and monetary policy in Iceland in coming quarters. The committee is to include external experts, foreign or domestic, with the aim of adding to the credibility of the monetary policy pursued. 
        

Fellow Icelanders.

The unemployment figures in this country are far too high at the moment and, unfortunately, are bound to increase further. These figures represent thousands of individuals: mothers, fathers and children. Whole families are affected by the downturn we are currently experiencing. It is painful to think that the perilous business ventures of a few have already resulted in the unemployment of over 13,000 people.

We have to respond with actions to create jobs and preserve those already existing. We will make a concerted effort to find ways of stimulating investment by domestic and foreign parties, creating new private sector jobs. The government will soon present its programme of public works and tenders. Various measures have already been taken by public authorities in labour market matters and to encourage innovation. 

The Housing Financing Fund’s authorisations to grant loans for housing maintenance will be increased and full repayment made of VAT on labour at the construction location of such projects. We know that major developers are simply waiting to begin work. It is up to us to help this happen as soon as possible. With the same end in mind, we are determined to expand the lending capacity of the Institute of Regional Development.

In all these important undertakings we will promote consultation with the social partners. We will take concerted action in response to the financial difficulties facing households in the country in close consultation with stakeholders. A welfare monitoring group, composed of various parties, will be established to follow the consequences of the banks’ collapse and make proposals for actions. Here we can learn from the bitter experience in Finland.

The government has already introduced a bill on debt restructuring, a new option in Iceland, and one I have been attempting to launch for a long time. In the coming weeks additional bills will be introduced to improve the legal situation of individuals facing temporary payment difficulties. The Insolvency Act will be amended to improve debtors’ legal position. Until now too much emphasis has been placed on the legal rights of creditors in the case of bankruptcy.

Laws will be adopted on private pension savings granting fund members a temporary authorisation to withdraw their private pension savings to meet pressing financial needs.

 

Fellow Icelanders.

I have listed here the substance of the principal items comprising the platform of the government now at the helm. This cabinet is a minority coalition of the Social Democratic Alliance and the Left-Green Movement, supported by the Progressive Party. Although it will hold office for only a brief period, it is in many ways unique. For the first time, an equal number of women and men comprise the government in Iceland; this is only the third time such has happened in the world. In addition, two new ministers were invited to join as external professionals, i.e. ministers who have not until now been involved in politics. These two ministers will steer ministries which are very important in the reconstruction ahead, and will play a key role in restoring public confidence. Under these circumstances I think this was the correct decision. I ask everyone to bear in mind that this government will be extremely short-lived, allotted a mere 82 days to carry out important tasks, task of vital significance to the nation.


I am very satisfied with the responsibility which the members of the Left-Green Movement, the Progressive Party and the Social Democratic Alliance here in the Althingi have shown in enabling this governmental co-operation, thereby resolving the cabinet crisis which had developed. Taking on the major tasks awaiting us definitely calls for courage and determination. I am encouraged by the fact that the parties supporting the government are ready to accept this responsibility, with elections just around the corner. I would also like to thank the members of the Independence party for their contribution to the last government and especially the former Prime Minister, Geir H. Haarde. I know that I speak for the entire nation in wishing him a speedy recovery.


Furthermore, I would like to take this opportunity to remind parliamentarians of our responsibility in the present circumstances. There is good reason to request especially that the entire parliament work together to expedite the progress of measures intended to mitigate the impact of the banks’ collapse on business and industry, households and families. I urge parlia­ment to show consideration for the government given these circumstances. I also promise that we will do our best to work and consult with other parliamentarians in the coming weeks. Our co-operation is essential for the nation – and we must not fail in this respect.

I also address my words to the nation. If ever there was a need for Icelanders stand together and support one another, it is now. We have to reinforce society’s safety net. All of us must be alert: the trade unions and the national government, municipalities, the church, the Red Cross and other NGOs and charitable organisations who often work miracles in this regard.

But we must also roll up our sleeves and begin the task of building a new welfare society. We have to be alert to new business opportunities, create the ground for start-up companies to take root in, and give companies already operating the leeway to increase their speed and need for labour. I urge all of business and industry to join forces with us – and to show consideration fo the fact that there is much that needs rebuilding.

 

Fellow Icelanders.

Determination rather than fear is what we need. We have to take on those projects and tasks that have been left in abeyance during the years of plenty. Everyone who can do so must make a contribution, because only by so doing can we speedily work our way out of these difficulties.

This government could be described as based on an agreement on a new beginning – new values. There has been a paradigm shift in the public attitude in this country. A consensus has developed on values differing from those which have been in the spotlight in recent years. A consensus has developed on our shared responsibility: we are all in the same boat.

The government which is now commencing its first working week is a liberal welfare government, representing a broad spectrum of opinion. A government which intends to rebuild, to create stability, and to defend the basic services of our welfare system.

I would like to express my thanks for the many greetings and messages of encouragement from individuals and organisations in Iceland and from leaders of other countries, which my government and I have received in the past few days. Foreign colleagues have expressed their understanding of our situation in telephone conversations, which is a source of great encouragement.

I hope it will be the epitaph of this government to be deemed the forerunner of a new era in Icelandic society, where democracy and the influence of the individual citizen acquire real meaning. This is and should be the government of the people of this country.

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