February 2, 2009 / 10:12 PM / 11 years ago

Iceland's new PM launches central bank reform

REYKJAVIK (Reuters) - Iceland’s new Prime Minister Johanna Sigurdardottir announced plans on Monday for a revamped central bank with a different leadership.

A day after her new center-left government was formed, Sigurdardottir said she had written to the three governors of the bank, including former Prime Minister David Oddsson, about them leaving their posts soon.

A special parliamentary session is scheduled for Tuesday, although many Icelanders fear the interim government will have little time to do much for the shattered economy before elections on April 25.

“I have written a letter to the three bank managers of the central bank where I have requested that we would come to an agreement about their retirement as soon as possible,” Sigurdardottir said on Icelandic television.

In a sign of her style of government, Sigurdardottir said Iceland would advertise for a single new central bank head. Opening up the field is in contrast to the image of cozy backroom deals that many had of the previous leadership.

Oddsson, Iceland’s longest-serving prime minister before he was appointed to the central bank, was seen as a staunch ally of former Prime Minister Geir Haarde, who resigned last week in the face of public unrest.

Icelanders grew angry in the weeks that followed the collapse of the country’s financial industry in October. No senior officials took responsibility for a crisis expected to push unemployment up to 11 percent in the coming year from about 1 percent previously.

FIRST TASK

Sigurdardottir is a member of the Social Democratic Alliance, which has teamed up with the Left-Greens. She has said the government’s first task is to focus on safeguarding businesses and homes.

Icelandic commentators expressed worry about the new government’s ability to pass significant reforms in the brief period before the elections.

“The new government has many tasks ahead and a very short time to complete them before elections,” wrote Olafur Stephensen, editor of the newspaper Morgunbladid.

The government said on Sunday it planned to take control of monetary policy decisions for now while it reformed the central bank. One area where little immediate progress was expected was the question of whether to join the European Union.

Another newspaper, Frettabladid, said the cost of a deal being struck with the more EU-skeptic Left-Greens appeared to be a further delay in joining the bloc.

“This is a pricey delay for the people and companies of this country,” wrote Frettabladid editor Thorsteinn Palsson.

Many have warmed to the idea of adopting the euro and ditching the Icelandic crown, a currency that has been volatile for years forcing authorities to keep interest rates high.

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