. but as time passes, the cost – in terms of all sorts of disadvantages and lost business opportunities – will rise. * * * i have expounded at length on monetary policy, the capital controls, and the imf programme, as these topics have been at the forefront of public discussion recently. but am i painting too black a picture? what is the outlook for icelanders ’ foreign debts and re - financing needs in the next few years? this subject has been discussed repeatedly in the recent past, and opinions vary. some go so far as to maintain that the economy will collapse under the weight of its debt and the treasury will become insolvent. fortunately, a careful analysis of the available information reveals this turn of events to be unlikely. there is still considerable uncertainty about what the icelandic economy ’ s net external position will be once the air clears after the fall of the banks. currently underway is a process involving writing down the private sector ’ s external assets and liabilities, with offsetting transactions in many instances because of bankruptcy proceedings. according to official balance of payments figures, iceland ’ s net external liabilities amounted to 5. 6 trillion kronur at the end of 2009, or nearly four times gdp, and about 0. 4 trillion kronur without the failed banks, or just under one - third of gdp. the underlying position that can be expected to emerge once the dust has settled will probably lie somewhere between the position excluding the failed banks and the position that reigned in iceland during the decade before the crisis. the exact result will depend, among other things, on the distribution of domestic and foreign creditors in the creditor group and the classification of the old banks ’ assets as domestic and foreign. the central bank has made regular efforts to assess this. in december 2009, the bank issued an opinion concluding that the underlying net external position could be around 90 % of gdp. the most recent surveys indicate figures closer to 80 %, including the most recent estimate of the treasury ’ s net obligations due to minimum deposit insurance for british and dutch online branches of landsbanki ; however, because no contractual agreements have been finalised, this is still subject to uncertainty. this is lower net debt than iceland has had since late 2005, and is certainly manageable. but this figure is still subject to uncertainty. central bank staff members will therefore continue to clarify the picture and are currently at work on a report on the icelandic economy ’ s foreign assets and liabilities. net debt is

1998 when that function was merged with the insurance supervisory authority in a new and unified financial supervisory authority, with which the central bank cooperates quite closely on financial stability issues. while the central bank had responsibility for banking supervision, its attention was necessarily focused on individual institutions and overseeing that their operations complied with existing laws and regulations. before banking supervision was transferred elsewhere, the central bank had also begun to focus its attention on broader financial stability issues along the lines that many other central banks were doing at that time. a logical part of that process was that in 2000 the bank began to publish semi - annual financial stability analyses in its quarterly monetary bulletin. one reason for the increasing focus of the bank on systemic financial stability issues in the late 1990 ’ s was the growing perception in a liberalised financial market that a weak financial system could undermine economic and monetary stability just as much as economic imbalances and weak policies could undermine an otherwise sound financial system. a sound financial system, including safe and secure payment and settlements systems, is also an important precondition for the effective implementation of monetary policy. capital movements were fully liberalised in the 1990 ’ s, as was the domestic financial market which also underwent significant structural change, including the withdrawal of the government from direct ownership in banking institutions. these developments stiffened competition at home and linked the domestic financial system much more closely to international markets. consequently, in its analyses, the central bank consistently draws attention to the potential vulnerability of the domestic financial system to changes in the external environment, including the ready availability of foreign credit for refinancing purposes, and its vulnerability to sudden changes in the exchange rate. the developments in the icelandic economy towards the end of last decade and into this one resembled in many ways those experienced in some of the other nordic countries a decade earlier. needless to say, and in view of the experience of other nordic countries, these developments caused considerable concern about the underlying stability of the financial system. the central bank candidly expressed these concerns in its financial stability reports, most notably in the spring of 2001. at that time the imf also issued its financial stability assessment which questioned the strength of the financial system in iceland in view of the tremendous imbalances in the economy and what was perceived to be an underlying weakness in the banking institutions. the imf identified a potential risk of a rapid depreciation of the currency, which it felt could further weaken the banks and pose a threat to them. early on in the upswing, amidst a rapid