Nr. 107, 26. nóvember 1998: Fyrirlestrar Halldórs Ásgrímssonar, utanríkisráðherra, í tengslum við opinbera heimsókn forseta Íslands til Svíþjóðar.
Halldór Ásgrímsson, utanríkis- og utanríkisviðskiptaráðherra, hélt í gær tvo fyrirlestra í Stokkhólmi í tengslum við opinbera heimsókn forseta Íslands.
Fyrri fyrirlesturinn var haldinn í gærmorgun á fjölsóttri viðskiptaráðstefnu á Hasselbacken og fjallaði um góðan árangur núverandi ríkisstjórnar í efnahagsstjórn og um horfur í íslensku efnahags- og viðskiptalífi. Á ráðstefnunni voru fulltrúar helstu fyrirtækja og fjárfesta Svía, en hún var skipulögð af utanríkisráðuneytinu og Útflutningsráði Íslands.
Seinni fyrirlesturinn var haldinn síðdegis í gær í sænsku utanríkismála- stofnuninni, Utrikespolitiska Institutet, og fjallaði um íslensk sjónarmið í öryggis- og varnarmálum á breyttum tímum. Fjölmenni var á fyrirlestrinum og urðu góðar umræður í kjölfarið.
Fyrirlestrarnir fylgja hjálagt.
Utanríkisráðuneytið,
Reykjavík, 26. nóvember 1998.
Address by Halldor Asgrimsson,
Minister for Foreign Affairs and External Trade
Minister for Foreign Affairs and External Trade
The Icelandic Economy: Performance and Prospects
Ladies and Gentlemen
I am honoured to address this distinguished gathering of business leaders in Sweden. I think highly of Sweden as a business partner and would welcome further collaboration between our countries. There is scope – and mutual interest – to expand and deepen this collaboration by building on the already solid foundation we have achieved, as well as new opportunities in high-skill sectors, finance and insurance, to mention some areas of increasing interest in this context. I am willing to do my utmost to support these developments.
In the next few minutes I intend to give a brief overview of Iceland's recent economic performance and the prospects ahead in a time of troubles in the world economy. I would like to start by locating Iceland in economic and social terms in the international economy.
Iceland's economic place in the international community
Iceland today is a very small open economy with basically the same social and economic fabric as the most advanced OECD countries. The economy is relatively market-orientated with quite an extensive welfare system – but still not over-stretched. Public expenditure as a proportion of GDP is close to the average in the OECD countries. Both GDP and private consumption per capita are in the top range among the OECD countries.
The level of education is high and Iceland's technical infrastructure is well advanced. Macroeconomic performance has been remarkable in recent years. Economic growth has been rapid, inflation has been kept in check and employment has been increasing. As a member country of the European Economic Area, Iceland has a similar legislative framework for businesses and industries to those prevailing in the EU.
Iceland is in fairly good economic shape compared with the countries it generally measures itself against. Iceland's GDP per capita, for example, ranks fifth among OECD countries; only Luxembourg, the USA, Switzerland and Norway rank higher.
According to a World Bank ranking of the richest countries in terms of their wealth per capita, instead of measuring their flow of income such as GDP per capita, Iceland is the seventh richest country in the world, next to Sweden in fact. Furthermore, a reasonable macroeconomic balance has been established, inflation has been brought under control and the economy has rapidly moved towards openness and liberalisation of markets. The economy's move towards macroeconomic balance is in a way confirmed by the fact that it meets all the Maastricht convergence criteria.
Now, Iceland is not on the road to EMU, at least for the time being, so why compare it and EU countries in those terms? The reason is simply that the Maastricht criteria provide a quick economic health check – not an uncontroversial one, but certainly one way of assessing an economy's performance. And, in sum, Iceland is doing quite well on this core.
Economic reforms
Behind these improvements in recent years lie extensive economic reforms. The most significant reforms relate to the strengthening of markets, opening up of the financial markets and more disciplined economic management. Distortions in the economic environment have been corrected by containing inflation and allowing interest rates and the real exchange rate to be determined by economic conditions. Furthermore, general attitudes towards the economy have changed. There has been growing appreciation of the need for stability and a consensus appears to have emerged that economic stability is the key to future prosperity.
The phases of economic reforms during this decade can be characterised by five milestones.
First, inflation was contained in the beginning of the decade. This was achieved by tight economic policies and moderation in the labour market.
Second, the real exchange rate and interest rates were allowed to be determined by market forces.
Third, the European Economic Area was established, creating a similar legislative framework for businesses in Iceland to those in the EU.
Fourth, capital flows have been liberalised in steps during the past few years and the final step was taken in the beginning of 1995 by liberalising short-term capital flows.
Fifth, ongoing market reforms, incorporation and privatisation. The latest development in this area is a successful first phase of privatisation in the financial market.
These reforms have significantly changed the structure and characteristics of Iceland's economy by establishing reasonable macroeconomic balance and integrating the national economy with the global one. Good macroeconomic conditions are a prerequisite for a competitive business environment and integration with the global economy provides conditions which are conducive for growth in the export sector. Hence, the economy has been streamlined and is now fitter than before to meet the challenges of the future.
The performance of the Icelandic economy has improved overall and there has been progress in many individual sectors. For example, the so-called knowledge industries, in particular software and biotechnology, have expanded rapidly and large investments have been made in the power-intensive sector. In addition, manufacturing in general and tourism have flourished over the past few years. The fisheries have strengthened as well, due to an advanced resource management system in the sector. There are also clear signs of increased productivity and improved efficiency in most other sectors which are undoubtedly the result of the changed economic environment.
The most important tasks ahead
So, I think it can be safely said that economic policy during recent years has certainly had its successes. But there is, of course, scope for further improvements. The most important tasks ahead can, in my view, be summarised in three main points.
Firstly, and probably also most compelling, is the need to achieve better fiscal balance and limit the public sector borrowing requirement. This is essential to promote national saving which is relatively low in Iceland. A better public sector financial balance is the surest way to lower interest rates and to ensure price stability, which in turn are preconditions for enabling economic activity to expand.
Secondly, further market reforms are called for in some sectors of the economy still dominated by state enterprises, i.e. the telecommunication sector, the energy sector and still to some extent the financial sector, although as I mentioned earlier the privatisation process has already been initiated.
Thirdly, the question of Iceland's future exchange rate regime needs more attention in light of the introduction of the single European currency, the Euro. The primary objective of Icelandic monetary policy has been to maintain a stable currency. However, a fully independent currency in the future may be too costly in terms of interest rate differential vis-à-vis other countries. Therefore, there is a compelling need to investigate alternatives, such as some form of a linkage with the Euro. Collaboration with Sweden in this area could be beneficial.
Measures along these lines would, in my view, further improve growth conditions in Iceland in the coming years. Some steps have already been taken in this direction and the trend for the economy has been set in this respect.
Current economic situation and prospects
Now, let us turn briefly to the current economic situation and prospects.
The Icelandic economy is currently in a strong upswing. Over the last two years, economic growth has averaged 5 per cent and the outlook is for similar growth in 1998 and 1999. During the same period, growth has averaged 3 per cent per year among our trading partners.
Along with rising levels of economic activity, the labour market situation has improved dramatically. In place of unemployment which peaked at 5 per cent of the labour force in 1995, the outlook is for 3 per cent unemployment this year and lower still in 1999. Labour shortages are even beginning to be encountered.
Despite substantial increases in wage costs and a rising level of employment over the last three years, inflation has not increased. On the contrary, inflation has slowed each year, and the consumer price index is now projected to rise by 1.5 per cent this year compared with 1.8 per cent in 1997. Current conditions in the labour market give us full reason to be on our guard against the dangers of accelerating inflation. In light of these conditions, inflation is expected to inch upwards next year, giving a 2 per cent increase between the 1998 and 1999 averages. This will bring domestic inflation into line with that among Iceland's trading partners.
Real disposable income has risen sharply this year, and is up 8 per cent in per capita terms over 1997. This trend should continue, albeit at a slower pace, with per capita real disposable income projected to rise 4.5 per cent in 1999.
The terms of trade have improved sharply this year. Higher marine product prices and lower oil prices more than offset lower aluminium prices, giving a positive terms of trade effect equivalent to 2 per cent of GDP in 1998. The terms of trade are expected to remain broadly unchanged in 1999. This is, however, dependent on the economic crises in Asia and Russia not causing a further contraction in world economic activity. Such a development would undoubtedly be felt in demand for Icelandic goods and services.
A current account deficit approaching 40 billion kronur in 1998 is a cause for concern. Rising domestic demand is the main reason for the deficit. However, it is partly the result of large imports for power intensive industry and the electric power industry. The forecast indicates that the current account deficit will narrow next year to 4 per cent from 6.6 per cent of GDP this year.
In sum, the outlook for internal and external economic conditions remains favourable for the years ahead, despite some clouds on the horizon due to increasing turbulence and uncertainty in the world economy. Economic growth is expected to be brisk, inflation should remain in check and unemployment looks set to decline.
Naturally, alternative scenarios are possible. As food for thought I want in particular to point out two other scenarios.
Firstly, the economic difficulties in Asia, Russia and some other emerging markets might have a more profound impact on the advanced economies than is now foreseen. This would naturally lead to less optimistic growth prospects in Iceland. Forecasting the timing and scale of such events is of course impossible. The impact would depend on how such a crisis would break out in other advanced economies.
Secondly, additional new investment in power-intensive industries seems to be likely. This would stimulate growth further than has been projected and lead to even more rapid annual economic growth in Iceland than is now expected.
These alternative scenarios are an attempt to map different roads for the years ahead. We cannot rule out the possibility that it will be bumpy road, but the odds are against this happening; most likely we will have a fairly comfortable ride if the world economy recovers soon from its current turmoil.
To sum up, the prospects for the Icelandic economy are in general fairly encouraging. There are opportunities ahead and the economy offers promising potential. I hope Sweden will be active in participating in these opportunities and that the already strong links between our countries will be reinforced still further.
DEFENSE AND SECURITY IN A CHANGING WORLD:
ICELANDIC VIEWPOINTS
BY
H.E. HALLDÓR ÁSGRÍMSSON,
MINISTER FOR FOREIGN AFFAIRS
AND EXTERNAL TRADE
UPI, STOCKHOLM, 25 NOVEMBER 1998
Let me begin by saying how pleased and honoured I am to be here at the Swedish Foreign Policy Institute today.
The topic I have been asked to address is particularly timely and relevant.
Nearing the end of what must be regarded as the most violent hundred years on human record, we are all seeking, in one way or another, to chart a new course into the 21st century. Contrary to what might have been expected when the forces of economic globalisation were upon us only a few years ago, it now seems that issues of security and defense are again pushing themselves to the forefront.
Taking effective measures to ensure national defense and security is the most solemn obligation any government is called upon to undertake.
Many years ago, a certain Nordic Prime Minister paid a call on chairman Mao in Beijing and was asked how many his countrymen were. Five million answered the Prime Minister. Mao, who was hard of hearing, misunderstood and asked: Fifty million? Is that all? The Prime Minister then pointed out to there was still a zero too many. Five million! Exclaimed the chairman. In that case we better make sure that we do something to preserve you!
With a population one twentieth of the country in question, it might seem a reasonable question what Iceland has done or is doing to preserve itself. This will be my vantage point today, as I try to explain defense and security in a changing world from an Icelandic perspective.
Changing world
The end of the cold war is obviously the capital event that we all take as our point of departure. Yet, as we all know, the closing of this gloomy chapter in the history of international relations has not been an unqualified boom in every respect.
The stale stability that characterised most of the post world war period, has been replaced by dangers of a more diffuse and multi-directional nature. These include:
Eruptions of small-scale but in many instances highly destructive regional conflicts. Frequently, such conflicts have led to humanitarian disasters and mass migrations, threatening stability in neighbouring countries.
The forces of globalisation, whose reckless progression in some instances has caused severe economic dislocations, contend, in many parts of the world, with increasing political and ethnic fragmentation.
Terrorism and problems associated with international crime are of growing concern.
The proliferation of weapons of mass destruction, be they nuclear, chemical or biological, as well as the technology to deliver them is emerging as a major new threat to international peace and security.
Lastly, the rapid deterioration of the environment will have disastrous consequences for the sustainable use of natural resources in the absence of effective measures to reverse the trend.
These are only some examples of the changing world we live in. But they all have one thing in common: They can only be resolved through a coordinated effort of the international community and not by individual countries on their own.
Enduring interests
Iceland, like others, is therefore obliged to take a broad view of its abiding security and defense interests. Obviously, those can no longer be strictly confined to the defenses of Iceland}s sovereignty and territorial integrity as such.
Enduring interests include among other things safeguarding our economic foundation; the living marine resources around Iceland and in international waters.
Any threat to these, albeit from pollution or unregulated fishing, must be viewed with great concern. The same applies to sustainable development. It is vital to my country to be able to harvest the sea without fear of attacks or threats of blackmail by self-appointed vigilantes who more often than not have no real connection to the sea.
To protect its interests in this field, Iceland has chosen, wherever possible, to work through relevant international organisations, not least the United Nations. Traditionally, therefore we have regarded the international rule of law, including the Law of the Sea, as a major element of our foreign policy.
We live in an age where there is increasingly a need for regional and international organisations to pool their resources. Consequently, the developing new security architecture in Europe consists of a number of international organisations which each, on the basis of its speciality, has to work together with others in order to secure peace and stability in Europe. There is a need for the expertise of the OSCE, the U.N., NATO, the Council of Europe and others. No one organisation was for example able to solve the relevant issues in Bosnia on its own, and the same is now true in Kosovo. The willingness of NATO to take on new missions in the new and developing security environment has been crucial in making it possible for other organisations to function under extremely difficult circumstances.
Let me however say from a NATO perspective that we need to continue to emphasize that collective defense will remain the core function of the alliance.
Through its membership in NATO, Iceland has contributed to the collective defense of the alliance by providing sites for NATO installations and the stationing of NATO/US soldiers in the country - the only Nordic NATO member to do so. This has at times been highly controversial because we Icelanders have so recently become independent from a foreign domination. Today, however, the vast majority of my countrymen agree with the wisdom of those who were steadfast in their views on this issue.
The reasons for the policy which has prevailed since 1951 are partly explained by Iceland not having its own armed forces. There still is a requirement for alliance presence in this strategic location in the North Atlantic and this cannot be overlooked or discounted. Thus, the NATO naval air station at Keflavik and other NATO installations in Iceland have also contributed to the alliance's critical Trans-Atlantic link and to regional stability in the North Atlantic. This has given Iceland, especially during the cold war, a voice in the affairs of the alliance that might seem out of proportion to our size.
Our membership in NATO remains one of two pillars of our national defenses, the other being our bilateral defense agreement with the United States. In the year 2001 we intend to review with the United States the present force structure. The key focus on our side will be to maintain a credible defense force in Iceland in the foreseeable future.
Adaptation
In April next year, NATO will celebrate its fiftieth anniversary in Washington D.C. This will not be a ceremonial event pure and simple. Instead, the alliance aims to agree on a revised strategic concept, admit the three new members and take further decisions on its open door policy.
Iceland participates in the ongoing examination and possible review of NATO's strategic concept with an emphasis on maintaining the letter and spirit of Article 5 of the North-Atlantic treaty. In the context of the strategic concept, Iceland regards the preservation of the Trans-Atlantic link as essential, which from the Icelandic perspective is manifested in the continuing importance of the bilateral 1951 defense agreement between Iceland and the United States.
The new and developing security environment in Europe has increased the possibility for Iceland to participate actively in the changes taking place. The government of Iceland has therefore decided to increase our active participation in NATO. At present Iceland participates in the SFOR operation in Bosnia- Herzegovina with a small medical team consisting of doctors and nurses under the command of the British forces stationed there. Additionally, our NATO-delegation in Brussels has been strengthened and an Icelandic representative has taken our seat in the military committee -- which is NATO}s highest military body -- for the first time in 49 years.
At the same time, we have several Icelandic police officers working with the International Police Force in Bosnia-Herzegovina in the very demanding environment that exist there. Also, it was recently agreed at cabinet level to send four observers to Kosovo with the OSCE Ground Verifcation Mission to support the international community in their attempt to secure a peacful resolution to the ongoing conflict.
All these activities, although modest in scale, illustrate our desire to engage more actively in peace support operations provided for by NATO or other international organisations in areas where regional conflicts threaten the peace and stability of Europe. Iceland has demonstrated that even the smaller nations of the alliance can make credible contributions to these efforts and we are doing so today in ways that would have been difficult to predict a few years ago.
It is our goal to increase Iceland's active participation in missions that enhance peace and security in Europe in a meaningful and responsible way.
The events in Bosnia-Herzegovina and most recently in Kosovo, have reflected negatively on Europe as a whole. Where the United Nations, the OSCE and the European Union failed to end full-scale warfare against largely unarmed civilian populations, NATO was called upon because of the powerful political and military contribution of the United States. Apparently, leading European countries lacked the political will and the capabilities to intervene independently in a manner likely to yield acceptable results.
This has, understandably, provoked renewed debates on the enhancement of the European Security and Defense Identity, ESDI, and on the role of the Western European Union in relation to NATO and the EU. These debates coincide with the entry into force of the Amsterdam treaty and the NATO summit in Washington D.C.
Iceland has actively supported and encouraged the development of the ESDI within NATO, partly through our associate membership of the WEU. Iceland realises that there will arise situations where it is appropriate and even necessary for European countries to undertake operations independently of their North-American allies. Accordingly, Iceland respects the aspirations of many European countries for endowing the EU with a military capability.
However, any changes to the pivotal role of the WEU between NATO and the EU, will have to take into account the embodiment of the crucial Trans-Atlantic link in NATO as well as the institutional ramifications posed by the different memberships of the three organisations.
At the Washington summit, NATO will continue its process of adaptation, by extending membership to the Czech Republic, Hungary and Poland.
At the Madrid summit, it was agreed to review the process of the enlargement of NATO in 1999. Iceland is committed to the open door policy and firmly supports the membership of the three Baltic states. It must be stressed that the enlargement of NATO is not an end in itself, but must conform to the basic task of maintaining a collective defense capability and should serve to enhance security and stability in the Euro-Atlantic area as a whole. Aspirants are adapting to NATO standards to be better prepared for membership. But, membership is first and foremost a political question, not a technical one. It is too early to say what decisions we will reach in Washington in April next year. We have to stress our primary goal of continuing the effectiveness of NATO. The alliance machinery must have time to adapt to new members. We must also remember that NATO is actively implementing a new and leaner command structure. These and other considerations must be kept in mind in the months remaining before the Washington summit. However, I X_Repeat, that the question of accepting new members into NATO is primarily a political one.
The Baltic states and the countries of Central and Eastern Europe aspire to NATO membership because of the capabilities of the alliance and because of its ability to implement commitments to collective defense. All applicant states should be judged on their own merits, regardless of geography or history. We have pointed to the determination of the people}s of the Baltic states to rebuild their societies, based on individual liberty, the rule of law, respect for national minorities and free market ideals. We greatly value our membership of NATO and feel it has secured our independence and liberty for almost fifty years. Therefore we understand our neighbours} aspirations to achieve the same security that we have enjoyed, and we feel morally obliged to assist them in attaining that goal.
I believe we have a historic opportunity to create the conditions for lasting security in the Baltic region, and hopefully we will make good use of the opportunities available to us to achieve that aim.
Based on our own experience, we understand only too well the wishes of Estonia, Latvia and Lithuania to join the alliance. Iceland will continue to support their wishes within the alliance and work towards their NATO membership. During my recent visits to the three Baltic States, I had the opportunity to give lectures in each of their capitals and witnessed the rapid development towards fulfilment of the critera for NATO and EU memberships. Our meetings in the socalled "5 plus 3" meetings, that is between representatives of the five Nordic countries and the three Baltic States, are very valuable to us, as the Nordic countries deepen their co-operation with our newly free neighbours. I will as the foreign Minister of Iceland continue our strong support for Baltic membership in NATO. Iceland has also consequently spoken out in favour of Baltic membership of the EU, to the extent possible for a non-member state.
Both applicant countries and other European countries interested in relations with NATO meet in the Euro-Atlantic Partnership Council (EAPC) and can participate in the Partnership for Peace (PfP). The establishment of the EAPC and the PfP has provided NATO with the substantive consultations and co-operation with partners and served to project stability to areas of strategic importance to the allies. Both the EAPC and PfP are still novelties and should be adjusted according to the experience gained in order to secure maximum benefits for allies and partners in the long term.
We remain committed to co-operation with Russia both bilaterally as well as within NATO. In this regard Iceland particularly welcomed the signing of the NATO-Russia Founding Act and the establishment of the Permanent Joint Council. We hope for the continued strengthening of this co-operation. We also welcomed the signing of the NATO-Ukraine Charter and the establishment of the NATO-Ukraine Council. These bodies reflect the unique character of NATO's relations with these two countries and they serve a function complimentary to the EAPC.
Occationally views have been expressed which have either compared the relative merits of NATO on the one hand and the OSCE on the other hand, or speculated about a possible integration of the two organisations into a hierarchical European security architecture. Such comparison is of little use. NATO and the OSCE are very different bodies and are not competing for the same space. However, as is currently being demonstrated in Kosovo, there is considerable need and scope for co-operation between the two, on a case-by-case basis.
Conclusion
A few words, finally, on Icelandic-Swedish interaction in the area of security and defense. I need not here dwell on the intense Nordic co-operation in almost every field of human endeavour. This includes the regular meetings the five Nordic Foreign Ministers have and exchanges on international and security policies and co-ordination. Suffice it to say, that Nordic co-operation is one of the main pillars on which Iceland}s foreign policy rests.
Iceland has always respected the Swedish policy of neutrality. Although not formal allies in the context of defense, Iceland recognised the vital contribution made by Sweden towards maintaining stability in Northern-Europe during the cold war and towards international peace and security, for example, through substantial participation in peacekeeping. To borrow a metaphor from the boxing world: Sweden has punched far above its weight!
It is noteworthy, that in the concluding chapter of the review by the Swedish Defense Commission on Security Policy, we read that: "Developments in Bosnia demonstrate the necessity of NATO}s crisis management capability for European security and the need for American presence". This conclusion is also reflected in the active participation of Sweden in the work of the EAPC and in the commitment to PfP, which is reflected in the training of hundreds of officers and police at the international training centre of the Swedish Defense Forces at Almnäs.
Iceland looks forward to having more opportunities in Brussels and elsewhere to work even closer with Sweden in an effort to create a safer world.