mar guðmundsson : the financial crisis in iceland and ireland – what are the lessons five years later? opening address by mr mar guðmundsson, governor of the central bank of iceland, at the half - day central bank of iceland conference “ the financial crisis in iceland and ireland : what are the lessons seen to be five years later? ”, reykjavik, 28 november 2013. * * * president of iceland, excellencies, ladies and gentlemen, on behalf of the central bank of iceland, i would like to welcome you all to this morning meeting, held five years after the collapse of iceland ’ s three cross - border banks, the enactment of the emergency legislation, and the beginning of the icelandic authorities ’ economic programme with the imf. and incidentally, it is exactly five years ago today that iceland ’ s parliament, alþingi, passed legislation on comprehensive capital controls. at this short conference, which we call the financial crisis in iceland and ireland : what are the lessons five years later? the focus is on the situation that faced these and other small countries with big banks in the autumn of 2008, how we managed the first phase of the crisis, and the policies that were put in place to mitigate the effects of the shocks that were hitting us. joining us today are three highly distinguished speakers who will take the floor after my opening remarks. first is patrick honohan, governor of the central bank of ireland, who took office in september 2009 and has played a key role in dealing with the crisis in ireland. then we will hear from geir haarde, prime minister of iceland in the autumn of 2008, who oversaw both crisis management during the banking collapse and the design of the economic programme with the imf. our final speaker is franek rozwadowski, who until recently was the resident representative of the imf in iceland. it is well known, both in this country and among scholars of the international financial crisis around the world, that almost 90 % of iceland ’ s banking sector failed in the first week of october 2008. what is probably less well known is that at that point, iceland was already on its way into a recession after an unsustainable boom and serious overheating during 2005 – 2007 and a currency crisis in the first half of 2008. the banking collapse and the associated wealth loss and further currency depreciation made the recession significantly worse, of course, as did the recession that hit the global economy in the

various studies including those published in our very own agriculture finance year book have demonstrated that these tax incentives did not result in any significant gains to farmers in the form of either reduced input prices, or an increase in lending to the agriculture sector. instead they benefited mostly the banks and importers while denying government revenues ; and as a result, government embarked on eliminating many of these tax incentives in the financial year 2014 / 15. what lessons can we learn from these experiences? agriculture in uganda is dominated by small holder farmers, of whom two thirds are engaged in subsistence agriculture, according to the 2014 uganda national population and housing census. therefore the agriculture development strategy must focus on the small holder farmer. any risk - sharing model for financing must be based on a clear understanding of the profile and origins of the risk. in this case, we must resolve what continually constrains the modernization of agriculture and what makes small holder farming very risky for financing. smallholder farmers face a raft of constraints to modernising their farming, of which lack of financing is not necessarily the most important. most smallholders produce very little surplus, beyond their own needs for consumption, which can be marketed. furthermore, the vulnerability of agriculture to the weather, pests and other hazards means that surpluses cannot be produced with any degree of reliability. in these circumstances, agriculture assumes a very high risk premium, and borrowing money to purchase agricultural inputs is very risky for farmers, and they will unavoidably struggle to repay loans. modernising smallholder agriculture in uganda requires a holistic set of interventions. the first priority should be to assist farmers to increase their output without exposing them to greater risks. there is evidence from agricultural projects that if smallholder farmers are given advice on the adoption of good agricultural practices, such as better seeds, optimal crop spacing, weeding, post - harvest handling etc, substantial increases in yields per acre can be achieved, even without the application of purchased inputs such as fertilisers. this would allow farmers to produce more marketable surplus and thereby generate cash incomes. the next step would then be to start applying modest amounts of purchased inputs such as fertilisers, to increase yields further. luckily, we are not short of demonstrable projects in the uganda and elsewhere that have markedly improved yields per acre and income of the farmers by providing this sort of comprehensive support. the 2015 agriculture finance year book for uganda provided an assessment of one such pilot by the one acre - fund in kamuli district.