Iceland's president told members of the Organization for Economic Cooperation and Development that his economy was well-suited to serve as a laboratory for competing economic models. More than four years ago, the country's banking system collapsed as the global economy fell into recessionary turmoil. Now, the president said he's been able to boast of a turnaround without using conventional Western models for economic recovery. He said there's now a lesson to be learned from failure amid new opportunities for a sustainable and low-carbon economic future.
Icelandic President Olafur Rangar Grimsson told OECD ambassadors in Paris that his country's experience with a low-carbon economy helped it recover from the banking collapse in 2008.
"With due respect to other OECD countries I believe Iceland is well placed to serve as a testing ground, as a laboratory, where the relevance of models and theories can be examined," he said.
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A 2010 report from a special investigation commission probing the Icelandic banking collapse found there were signs of impending chaos years before catastrophe struck. A 2000-page report found financial service regulators "lacked experience" to handle a 20-fold increase in size of its banks. But the president said that just 40 years ago, Iceland was still considered a developing economy that depended on fishing and sheep farming. Grimsson said economic recovery in his country didn't come through some of the same measures embraced by the economic leaders in Germany or the United States, however.
"We did not follow the established financial orthodoxies of the Western world since the 1980s," he said. "We let the private banks fail; we introduced currency controls; we protected the welfare system and to that extent rejected orthodox austerity measures."
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The World Bank finds that gross domestic product for Iceland in 2010 was in the red by 4 percent but turned around the next year with 2.6 percent growth. By 2012, the bank found that Iceland ranked just behind Germany in terms of the ease of doing business there. Part of its economic recovery, it said, was because of its ability to exploit geothermal energy reserves. Iceland already gets 26 percent of its electricity from geothermal resources and the rest comes from hydropower. That radical transformation, said Grimsson, is what defines Iceland's success.
Iceland hosts its first geothermal conference Tuesday featuring World Bank Managing Director Sri Mulyani Indrawati as the keynote speaker. Representatives from around two dozen countries are expected to attend.
"This has indeed been a revolutionary transformation, not only allowing us to build an economy with an inherent long-term strength but also to make significant contributions to the rest of the world," said Grimsson. "The geothermal sector has now become one of the major pillars of Iceland’s global position, of our foreign policy and our diplomatic efforts."
By. Daniel J. Graeber of Oilprice.com