who make these decisions control important economic instruments which are beyond the reach of the central bank. there are thus many parties involved in managing economic affairs and the central bank is far from the only party responsible here. actions to boost economic growth and reduce unemployment recently a number of actions have been announced to relax restraint in the economy. the full effect of major interest rate cuts in recent months has yet to be felt. the central bank has also announced imminent relaxation of reserve requirements, which will release funds in the banking system and should lead to interest rate decreases there. each day the central bank has puchased foreign currency, in so doing placing some isk 11 billion in circulation since september, which has certainly slowed the exchange rate rise. the government has decided to accelerate certain projects on which it will spend isk 6 billion. local authorities and other parties have announced measures aimed at the same objective. so it is clear that much has been done which can be expected to increase economic growth and reduce unemployment in the coming months. ahead of us are the most extensive construction projects in icelandic history, which will have a major impact on the economy in both the short and long term. they will require sound economic management. it is important to foresee early enough what effects this development could have if no action were taken. it would be completely irresponsible to simply allow things to take their course as if nothing needed to be done to compensate for these developments, as has actually been proposed in some quarters recently. the central bank ’ s analysis of the proposed development indicates that, with appropriate economic management actions, it should be possible to maintain economic stability and keep inflation under control. the central bank of iceland will do its utmost to achieve this, as it naturally bears an indisputable legal responsibility to do so.

way out of those difficulties. the work this requires is painful but necessary. substantial additional cost to the treasury due to a new financial system shock, due to lack of action, would jeopardise the progress that has been made. it would undermine the treasury ’ s creditworthiness and delay access to foreign credit markets, both for the treasury and for icelandic companies, or – at the very least – would affect the terms offered. access to foreign credit is a prerequisite for export - driven growth. moreover, deterioration in the banks ’ position would adversely affect terms in the domestic credit market. lending rates could rise and deposit rates could decline, impeding investment and delaying economic recovery. as soon as confidence in the treasury and the financial system erodes, iceland ’ s currency will suffer as well. in that instance, we would not be able to lift the capital controls as planned, after the third review of the imf programme. furthermore, the financial system would be poorly equipped to tolerate possible instability associated with capital account liberalisation. finally, it is appropriate to bear in mind that financial undertakings ’ scope to meet the needs of other individuals and firms would be drastically reduced. all of these factors show how vital it is to the public interest that the central bank and the financial supervisory authority set forth general guidelines so as to maintain stability while matters of legal uncertainty are being settled. other authorities and the legislature must also assess whether further measures must be adopted in order to remove all doubt. ensuring stability is in our hands – all of our hands. we hope and expect that all parties will work together to achieve that goal.