Iceland's new centre-left government unveiled a package of measures on Tuesday to help the country out of an economic crisis and renewed its call for the central bank chief to step down.
Prime Minister Johanna Sigurdardottir told a news conference the government planned to create a separate company to take over debts owed by 15-20 of the biggest companies which have run into financial difficulties due to the crisis.
The minority government said it would also present a bill to parliament allowing Icelanders access to funds in private pension plans which they would not otherwise been able to use until retirement.
Sigurdardottir, whose coalition cabinet won power after the previous coalition government fell apart in the face of public protests last month, also renewed her demand that Icelandic central bank governors step down.
"We are experiencing growing loss of confidence in the (central) bank at home and abroad. That is why I asked the governors to step down," she said.
"The current situation is hurting us abroad."
Central bank Governor David Oddsson, who many Icelanders blame for failing to avert the crisis that led to the collapse of the country's main banks and currency last year, refused to resign in a strongly worded public letter at the weekend.
But the coalition government, which is to hold office until a new government is in place after an early election seen in the coming months, has said reshaping the central bank is a priority and has unveiled plans to change the bank's structure.
"It is absolutely necessary to re-establish stability and confidence in the central bank," Finance Minister Steingrimur Sigfusson said.
"The current situation simply must come to an end."
Under a bill in parliament, the Althing, the central bank would be run by a single governor rather than the three-person board of which Oddsson is a member. One of the board members, Ingimundur Sigfusson, resigned last week.
Iceland's banking system collapsed last year under the weight of billions of dollars of debt accumulated over years of overseas expansion and trade in the Icelandic currency virtually ceased. The country has received a $10-billion financial aid package led by the International Monetary Fund.
BAD DEBTS
The minority government of the Social Democratic Alliance and the Left-Green Party said creating a vehicle to rid Iceland's fallen banks of their biggest corporate debts would help keep the wheels of the Icelandic economy turning.
"We're not re-inventing the wheel here, this is a tool that many of our neighbouring countries have successfully used," Finance Minister Sigfusson said.
"The banks would continue to run the small and medium size businesses they have had to take over so far. By leaving the government to focus on the largest businesses, the banks will be in a better position to deal with the smaller ones."
The collapse of the Icelandic banks, which were taken over by the government in the space of a few days in October last year, has laid waste the economy which is expected to contract by as much as 10 percent this year. Unemployment is set to soar.
The government said its scheme to ease the debt burden of the banks included legislation that would allow companies to prolong their operations while under administration and simplify the manner in which insolvent businesses could be dissolved.
To ease the pain suffered by Icelandic households — many of which have been hit by unemployment, until recently all but unheard of on the North Atlantic island — a separate bill would allow Icelanders to use part of their pension funds.
Distressed households would be able to apply for access to the funds they and their employers have set aside in private pension schemes. Sigfusson said he estimated about 80 billion to 90 billion Icelandic crowns could be released this way.
