Policy Brief: Economic Survey of Iceland, 2009

Against the backdrop of the global financial turmoil and recession, Iceland has been struck by a banking crisis of unprecedented proportions and the economy has plunged into a deep recession. The plight of the banking system was in part the consequence of the sudden shutdown of global capital markets. But Icelandic banks’ aggressive expansion strategies in an atmosphere of ineffective supervision rendered them highly vulnerable. Faced with events having potentially dramatic economic and social consequences, the government sought the assistance of the international community in support of the medium-term adjustment programme to restore policy credibility and economic growth. While progress has been made in implementing the programme, much remains to be done.