Sigrún Davíðsdóttir's Icelog

After the government’s less than a stellar appointment process a new governor of the Central Bank of Iceland present governor Már Guðmundsson has been reappointed. This might seem to end uncertainties that the government has created by its fumbling actions. But no, not quite. It may sound like a contradiction but it could be said that effectively the new governor is being fired by being reappointed.

After much back and forth minister of finance and leader of the Independence party Bjarni Benediktsson has announced that Már Guðmundsson will be reappointed governor of the CBI for another five years. This seemed at first to indicate that Benediktsson has shown independence from the old guard in the party, which has vehemently fought to throw Guðmundsson out, not to mention the fact that prime minister Sigmundur Davíð Gunnlaugsson leader of the Progressive party has time and again criticised the bank, and thus its governor.

However, it says in the letter of appointment that since there is a committee working on revising laws on the framework of his office might change (see further here).

This has prompted Guðmundsson to publish a letter (in Icelandic) on the bank’s website where he acknowledges the possibly imminent changes. He states that he might be tempted to return to work abroad (as he did earlier, he was with BIS) and might not wish to stay in a changed CBI.

This effectively means that yes, Guðmundsson is reappointed – but things will not necessarily remain as they are for what should be his whole five year period. Or it could be said that he has been fired but at a later and unknown date.

However, the optimistic view is that Guðmundsson now has some time and could very well use this time effectively. After all, he has nothing to lose. And so far the government has not been able to make up its mind as to how to reorganise the CBI and will not necessarily jump to a rapid reorganisation.

It is clear that Guðmundsson is adamant about taking decisive steps towards lifting the capital controls and would no doubt like that to be part of his legacy at the bank. That includes having to decide on the fate of the estates of the fallen banks. The feeling is that Benediktsson is more than willing to follow the guidance of the CBI – and the IMF, which has warned against the so-called bankruptcy route (see here). Prime minister Gunnlaugsson, who feels that Iceland won an important victory over foreign finance forces in the Icesave case and is still fighting that battle, seems to take the opposite view (and the fact that Guðmundsson wanted to negotiate on Icesave most likely made him less endearing to the prime minister).

Már Guðmundsson has so far proved himself to be a capable governor, respected abroad and in Iceland. As always, not all will agree with the CBI policy, rates etc but that is as it is. Most importantly, Guðmundsson has shown independence towards Icelandic power centers and political parties. The bank is i.a. investigating alleged fraud involving foreign currency transaction by the largest fishing industry in Iceland, Samherji.

The pessimistic view is that the CBI is now, as much as before, in a limbo. And that again bodes nothing good for Iceland. While waiting, Guðmundsson might just as well make a heck of a good use of his time.

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