problem, and opening up market access to resident entities. a number of possible scenarios that could achieve this are under scrutiny at this time, but there is no need to discuss them in detail here. but if such measures generate the results we are aiming at, it is important to ensure that the impact on foreign debt service, whether in domestic or foreign currency, is manageable ; to safeguard iceland ’ s public debt position, sovereign credit ratings, and access to capital markets ; and ultimately, to provide domestic entities with access to foreign credit on acceptable terms. some of these goals may conflict with one another, and this should be considered when a course of action is chosen. in addition, it is important that economic policy and incentives of public systems promote national saving and that attempts be made to safeguard the current account surplus in the years to come, as this will expedite the resolution of the balance of payments crisis, enhance confidence in iceland, and reduce the likelihood that iceland will emerge from the process facing economic imbalances. because these are irrevocable actions, we have only one chance to settle the estates, not a general lifting of the controls, and therefore it is critical that we do it successfully. but as i have said before, that does not change the fact that the cost of the capital controls rises over time and that it is important for progress and high - quality gdp growth that they be lifted sooner rather than later. it is also important that we learn, from our experience and others ’, that unrestricted capital flows are accompanied not only by benefits but also by risks. appropriate prudential rules and other measures must be in place to address those risks when that step is taken. this speech has centred primarily on two of the central bank ’ s main tasks : monetary policy and financial stability. but the bank ’ s functions are actually much broader than this. and many of those functions have grown in scope in the wake of the financial crisis – for instance, the investment and management of larger foreign exchange reserves and a dramatically increased need for legal services. still other tasks have been added on, such as capital controls surveillance and the recovery of claims that reverted to the bank after the crash. the central bank has gained strength as an institution in recent years, as it has grappled with older projects and newer challenges. in order to deal with them successfully, it has been necessary to expand our staff, but nowhere near as much as one might expect or as much as might have been done

a success this actually is, given that a number of other countries have already recovered their lost output. it has been pointed out that iceland ’ s investment level is low, but this has been true of most developed countries recently, apart from major commodity producers such as australia, canada, and norway. if we compare iceland ’ s recovery to the experience of other countries that have suffered a twin banking and currency crisis, we see that it is far from anomalous, not least in view of the fact that, among comparison countries, recoveries have often taken place in a much more favourable global economic environment than we are facing today. in assessing the recovery, it must also be borne in mind that the room for manoeuvre for stimulating demand was limited. from 2010 onwards, fiscal policy had to focus on gradually eliminating the fiscal deficit, which was a prerequisite for reinstating the sovereign ’ s access to foreign capital markets. early on, the monetary policy committee had to focus on stabilising the exchange rate in order to stop the collapse of asset prices and the automatic increase in private sector debt, most of which was either exchange rate - linked or indexed to the cpi. the scope to cut interest rates in order to stimulate demand was therefore limited, although it began to develop over the course of 2009. the capital controls that were introduced in late 2008 provided some room for manoeuvre and enabled the central bank to allow real interest rates to fall faster than would otherwise have been possible. inflation, which had skyrocketed after the currency collapsed, began to subside gradually, but the inflation spike caused by contractual wage increases and excessively high inflation expectations cut into that room for manoeuvre from mid - 2011 onwards. in order to understand the economic recovery in the face of these headwinds, two points are important. the first point centres on the nature of the recession. to some extent, the recession represented the inevitable adjustment of domestic demand to the fact that it was no longer possible to fund the country ’ s massive current account deficit and to the abrupt contraction of two sectors – financial services and construction – that had grown exponentially during the upswing. when the dust settled, the domestic economy still rested on other sturdy foundations, and the low real exchange rate stimulated some of iceland ’ s tradable sectors. the second point is that iceland is a small, open economy, where domestic demand is often less of a driver of gdp growth than foreign demand than is