Iceland slashes cod quotas, economy seen hit

The Icelandic government said yesterday it would cut cod fishing quotas by 30 per cent - a move expected to dampen economic growth - to replenish dangerously low fish stocks.

Slashing the quotas is expected to hit Icelandic exports, about half of which consist of fish products, and ease inflationary pressures in the economy, whose high interest rates have attracted speculative investment.

The cuts are deeper than a prediction made only last Thursday, when the Icelandic central bank said it expected fishing quotas to be reduced by 17 per cent.

But they are in line with a call from the island's Marine Research Institute, which last month pushed for a 30 per cent reduction. The quota will now be 130,000 tonnes for the next fisheries year 2007/2008.

"This decision is made with the long-term effect in mind," Fisheries Minister Einar Gudfinnsson told reporters. "We are aware that the cod stock is very vulnerable and that we have to act now and cut the quota so that we can continue to fish cod in the future."

The Icelandic crown initially weakened on the news but recovered to stand 0.5 per cent stronger on the day at 83.16 to the euro by 1109 GMT.

Kaupthing economist Thorhallur Asbjornsson said the quota news would slow, but not derail, the economy. "It might be around one per cent of GDP (gross domestic product) it will shave off. Of course it is significant, but we don't believe it will be enough to cool down the economy," he said.

Finance Minister Arni Matthiesen said the impact on the economy would be extensive but manageable.

"Nothing will replace 60,000 tonnes of cod in the economy," he told reporters. "But the bottom line is that we are reacting to an existing problem with temporary cuts in the cod quota so that we can continue to fish cod in the years to come."