Iceland's Resurrection: How Can Companies Rebuild Themselves?

Abstract

The author describes the effect of economic instability on businesses in Iceland. He writes that it is important that firms operate in a stable economic environment, have a healthy capital base, moderate leverage, ample liquidity and a cautious management style. Management must be able to predict future inflation; to predict future exchange rates; to predict wage developments; to be able to assess the current level of leverage; to know who owns the firm; and to predict the demand for its goods and services. The author claims that managers of Icelandic firms have not been able to answer these questions accurately in the past few years and no one can predict the future at this point in time. A large fraction of businesses are insolvent because of the currency depreciation and the country’s commercial banks are in fact investment banks which guard their own interests much more than the interest of their customers. The banks own many businesses fully and have operated some of them for almost two years. The author proposes that the government deficit be eliminated by 2012; that public debt be lowered to 60% of GDP in five years time; that wage increases should be moderate; capital controls abolished; a membership treaty be negotiated with the EU; and a plan be made to abolish the krona.