Address by Davíð Oddsson, Prime Minister of Iceland,
on the establishment of the Icelandic Chamber of Commerce in Japan
Tokyo, 14 January 2003
Ladies and Gentlemen:
It is a pleasure and an honour for me to be present for the establishment of the Icelandic Chamber of Commerce in Japan. Chambers of commerce make an excellent forum for strengthening business contact between countries and the establishment of this one now is a major milestone in the history of Icelandic-Japanese relations. I would like to take this opportunity to discuss briefly Icelandic affairs and relations between our countries
Next year, one hundred years will have passed since the first Icelandic government minister took office. That event marked a turning point in the history of Iceland, restoring the political centre of gravity to it after almost 700 years of being ruled first by Norway and later by Denmark. And in 1918 Iceland became a free sovereign state under a union with the Danish king. This new-found political freedom launched a period of great advances in most fields and some of the greatest progress was made in the economy. In the space of a few decades Iceland managed to break out from centuries of poverty and now ranks with the nations that can offer their citizens some of the highest living standards in the world. Economic progress in the twentieth century was based on fisheries which is still one of the main pillars today although the economy now is much more diversified than before. Iceland has large energy resources in its waterfalls and geothermal fields, which have provided a basis for rapidly growing aluminium production by foreign investors. Tourism has also become a major industry.
One of the characteristic features of Icelandic economic policy in the last century was extensive government intervention in the economy. This was not confined to Iceland, the same happened in most European countries. In Iceland, however, this trend was taken so far that the economy was to a large extent officially controlled. Banks were owned by the state, the exchange rate and interest rates were decided by the government, and there were numerous state-owned enterprises. Even though the economy grew rapidly for most of the century, this arrangement caused the Icelandic economy to be very prone to swings and left its foundations quite unstable in the long run. A major turnaround took place in this respect in the last decade of the century. Throughout the nineteen-nineties, a systematic programme to reduce government influence on the economy was put into effect. State enterprises of all sizes have been sold, the privatisation of the banking system is nearing completion, the Central Bank – which was recently granted full independence – determines interest rates, and the exchange rate of our currency, the króna, is determined by market forces. These changes, along with the treasury budget surplus that has been achieved for many years recently, have led to strong economic growth and at the same time laid a firm foundation for increased growth in the future. And international comparisons confirm the great success we have achieved in this field. The annual report for 2002 by The Economic Freedom of the World network clearly shows the development that has been taking place. In 1990 Iceland was ranked number 30 in the world in terms of economic freedom, in 1995 it was number 18 and in 2000 it had reached eleventh place. This is a gratifying testimony to our success and encourages us to continue on this path and do even better.
Looking ahead to the coming years for the Icelandic economy, we can see that good fundamentals are in place for ongoing growth. The foundation is solid and forecasts have been made for substantial growth in the next few years. A particularly positive trend has been that national savings are increasing, and are estimated to have been 19% last year.
Ladies and Gentlemen:
In 1944 Iceland received full independence and the Republic of Iceland was established. Foreign policy, which until then had been in the hands of Denmark, thereby came under Iceland's own control. From the outset it was the main policy of Icelandic governments to play a full part in international cooperation. Iceland joined the United Nations in 1946 and was a founding member of NATO in 1949. In 1951 a defence agreement was signed with the USA, we soon join the OECD and began taking part in the work of the International Monetary Fund. Iceland signed the GATT treaty in the nineteen-sixties and became a member of EFTA, the European Free Trade Association, in 1970. In 1994 we became part of the European Union's single market through the European Economic Area agreement, which was signed between the EU and EFTA, but did not accept an invitation to join the Community. This may sound strange, given how eager European countries are to join the EU, and possibly even stranger in light of the fact that the it is by far the largest market for Icelandic exports, and virtually all our European neighbours and allies belong to it.
One reason for this standpoint is that the roots of Iceland's economic independence lie in the rich fishing grounds surrounding the country. The European Union's Common Fisheries Policy, which is based on transferring decisions on fishing issues from member countries to the central EU authorities, is therefore completely unacceptable to Iceland. Membership of the European Union would not serve Icelandic interests for various other reasons. One because adopting the euro could cause severe difficulties for economic policy implementation. Although Iceland's economy, like that of most other countries in Europe, is based on market forces and free trade, the fact is that swings in the Icelandic economy are in many ways determined by other factors than those which predominate on the continent. In the view of economic experts this makes it vital for us to keep control over the instruments that accompany an independent monetary policy. It is necessary for the exchange rate of the króna to reflect the state of the economy and for interest rates to be in line with the economic situation at any time.
Although Iceland chooses to remain outside the European Union and is located where the continents of Europe and America meet, Icelanders regard themselves as an entirely European nation. This is logical, given our history and culture, and we have greater economic political interests to safeguard in Europe than anywhere else, and rely heavily on peace and stability in the continent. This made it necessary to ensure close and positive relations between Iceland and the European Union. The European Economic Area Agreement secured Iceland's access to the EU single market. As a result, Iceland can now be said to enjoy the benefits that membership would bring, but at the same time we have every opportunity to make the most suitable possible arrangements for ourselves at any time and are not too restricted by the burden of regulations which is so very characteristic of the European Union.
Ladies and Gentlemen:
Increasing globalisation of business and trade is a positive and important development for us. It is crucial for the Icelandic government to create an economic framework that will enable us to take advantage of the opportunities that present themselves. We need to ensure that Icelandic companies which operate in international markets and run their activities from Iceland will continue to want to do so. At the same time we need to attract foreign businesses to our country. In order to boost Iceland's competitive position, the government recently cut corporate income tax from 30% to 18%, thereby making Iceland an exciting option for businesses that want to enjoy low tax rates but still have full and unrestricted access to the EU single market. An additional factor is that businesses are now allowed to keep their accounts in whatever currency suits them, thereby greatly reducing all currency risk.
In recent years, Icelandic businessmen have to a greater degree than before been looking beyond Europe in order to diversify their exports and markets and to obtain more tourist traffic from other parts of the world. In Asia, and especially here in Japan, there are already important markets for Icelandic companies, but also long-term opportunities for increasing the share of these markets in our national exports. Besides seafood, Icelandic companies have the potential to win ground in foreign markets by selling their experience and expertise in fisheries and equipment for fishing and fish processing, which is already a dynamic manufacturing industry in Iceland.
Iceland and Japan have long enjoyed good relations and have now set up embassies in each other's countries which opens up new possibilities to strengthen relations. The decision to open a Japanese embassy was made following a visit by the late Prime Minister Keizo Obuchi to Iceland in June 1999 and his personal interest in the matter. Prime Minister Obuchi came to Iceland to meet the Prime Ministers of the Five Nordic countries to discuss international issues and other common interests, and also to make a short official visit to Iceland at my invitation. Two years before, Prime Minister Ryutaro Hashimoto had met the Nordic Prime Ministers at their summer
meeting which was held in Bergen, Norway.
Shared values and interests give Iceland and Japan opportunities for international cooperation in various fields. These include the conservation of the oceans and their living resources against overfishing and pollution. Iceland became a member of the International Whaling Commission again last year after ten years' absence. Our membership now is made with a reservation against the ban on commercial whaling, and the Japanese government deserves our most heartfelt thanks for their invaluable assistance in enabling us to rejoin with this condition. On becoming a member Iceland undertook not to begin commercial whaling until 2006 at the earliest, but scientific whaling could start earlier. As ever, because of the small size of our home market it is a precondition for whaling off Iceland that it must be able to export the products, and in this respect we naturally look to Japan as our traditional market for them.
A considerable amount of trade takes place between Iceland and Japan. Our imports from Japan in recent years have amounted to about 5% of our total imports, and our exports to Japan to between 5 and 6% of the total. Tourism between our countries is also considerable and Iceland is interested in signing an air transport agreement with Japan, which is regarded as an important precondition for further increasing travel between our countries.
Ladies and Gentlemen:
I would like to end by congratulating you on the establishment of the Icelandic Chamber of Commerce in Japan. I am convinced that Icelandic-Japanese relations will continue along the excellent lines we know today, and that trade between our countries will flourish even further. I am certain that the Chamber will make a strong contribution towards achieving that.