ICELAND'S GEYSERS NO LONGER GUSH INFLATION
"Watershed, perhaps is a strong word", said Johannes Nordal, the governor of the Central of Bank of Iceland, "but I think there is a very significant change taking place here."
After forty years of regarding inflation and a depreciating currency as unavoidable evils, Iceland seems to have decided to kick its bad habits and impose financial discipline upon itself. The government is encouraging Icelanders to save, for purposes other than buying their own houses, and it has made it a policy to curb the growth of its foreign debt.
High inflation and foreign debt have been features of the Icelandic economy for decades. The inflationary spiral began after the Second World War, in effect at the time Iceland became fully independent from Denmark, and it became ingrained after the first oil crisis. For short periods, matters of months, inflation has hit 100% on an annualized basis. In 1985 it ran at 33%.
This tendency towards high inflation has several reasons. There is a consensus in the country that there should be full employment. Those without jobs at present are 1% of a population of about 250,000.