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End-of-mission statement by Mr. Juan Pablo Bohoslavsky, United Nations Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights. Mission to Iceland, 8-15 December 2014


Reykjavik, 15 December 2014

Today marks the end of my official fact-finding visit to Iceland which began on 8 December 2014. I would like to thank the Government of Iceland for inviting me to undertake a mission to the country and for its full cooperation during the visit.

There were two reasons why I had requested to visit Iceland: On the one hand I wanted to find out to what extent the Republic of Icelandic fulfilled its obligations to secure human rights in the social sphere in the context of its recent financial banking crisis. This obviously includes identifying human rights challenges that in my view require to be addressed.

On the other hand I wanted to visit Iceland as I was convinced that even in a harsh financial crisis Governments, social partners and civil society can make a big difference. When States have to cut down public expenditures they have policy choices: They can try to minimize as much as they can the negative impact of a financial crisis on the enjoyment of social rights in conformity with their international human rights obligations, or they can further escalate human suffering; do more harm to their own people than necessary; distribute financial losses in an unjust, unequal or discriminative manner, hitting the most vulnerable in society, in particular those that have less power to stand up for their rights.

We have witnessed in recent years in many countries how a number of Governments have exacerbated human suffering and paid lip service to their human rights obligations they have assumed under international treaty law, including the International Covenant of Economic, Social and Cultural Rights to which Iceland is a party since many years.

I believe that other countries facing similar situations can learn from the path chosen in Iceland in response to the crisis, which included protecting its core social welfare system, efforts to ensure citizens participation in the decision making process, and endeavours to establish political, administrative and judicial accountability.

I have benefitted from discussions with senior Government officials from the ministries of Finance and Economic Affairs, Welfare, Interior, Education and Foreign Affairs. The programme also included meetings with the Directorates of Labour and Health; the Central Bank of Iceland; the Financial Supervisory Authority; the Office of the Special Prosecutor and the President of the Supreme Court; Members of Parliament from the majority and opposition, including the Parliamentary Review Committee which was entrusted to follow-up on the report of the Special Investigation Commission the Parliament had set up to study the causes of the banking crisis; the Parliamentary Ombudsman; the Debtor’s Ombudsman and the Ombudsman for Children; the Icelandic Association of Local Authorities; the Housing Financing Fund and Welfare Watch. I had the benefit to meet the President of the Icelandic Confederation of Labour and the Director of the Confederation of Icelandic Employers, current and former representatives of the banking industry and their lawyers. I also met the delegation of the International Monetary Fund currently on visit in Iceland, and with a broad range of civil society organisations and academic experts at the University of Iceland.

On Saturday, I visited the neighbourhood of Breiðholt allowing me better to understand certain challenges the Icelandic society is facing at grass root level and the important work citizens and local authorities perform at community level. I would like to take this opportunity to thank all of those who took time to share information and their thoughts with me.

My findings and recommendations will be detailed in a report that I will present to the Human Rights Council in March 2015. Nevertheless, I would like to share some preliminary observations and recommendations with you.

Iceland has assumed various international obligations through ratification of a number of core international and regional human rights treaties. Under the International Covenant on Economic, Social and Cultural Rights (ICESCR), Iceland is obliged to respect, protect and fulfil progressively social and economic rights, including the right to work, social security, health and education using “the maximum of its available resources”. According to the Covenant retrogressive measures should be avoided to the extent possible, which means States should not lower the level of enjoyment of these rights by its population in one or the other form.

While the Committee on the International Covenant on Economic, Social and Cultural Rights has acknowledged that financial crisis may require economic adjustments, it reminded the Government of Iceland in 2012 that such adjustments should be (a) of a temporary nature, (b) be necessary and proportionate, (c) not discriminative and compromise all possible measures, including tax measures, to support social transfers to mitigate inequalities and to ensure that the rights of the disadvantaged and marginalized individuals and groups are not disproportionally affected; and (d) identify a social protection floor and a minimum core content of rights to ensure their protection at all times.

This is well reasoned, but I must confess that it is a difficult task, in particular when a collapse of the banking sector threatens to undermine the entire economy. But let me share with you my preliminary assessment how well the Republic of Iceland has lived up to its human rights commitments under international human rights law.

It should be recalled that Iceland, at the time when the crisis hit in late 2008, showed in international comparison very high levels of enjoyment of social and economic rights, at least some aggregate indicators suggest that. Iceland ranked very high on the human development index, had one of the lowest infant mortality rates in the world, unemployment levels below 2 percent, and a high degree of gender equality, despite persistent pay-gaps.

Were the losses of the collapse distributed equally and fairly, securing the most vulnerable groups?

The emergency legislation approved by Parliament in October 2008 and subsequent adjustment policies were based on the principle that the socialisation of the losses of the banking collapse should be avoided as much as possible. Savings in deposits for Icelandic customers were secured and given preference over other claims, including those by international institutional investors. The debt of many local businesses was written off to a large degree to ensure that economically viable business could survive and employment be preserved. The devaluation of the Icelandic Krona helped export driven demand in particular in the fishing industry and contributed to a tourism boom, however workers, in particular in the construction industry, suffered a heavy blow.

The International Monetary Fund implemented jointly with the Republic of Iceland a rather un-orthodox adjustment programme, which includes stabilising the currency through the introduction of capital controls.

The Government has to be commended for sheltering core social expenditures against cuts. While Government revenues fell significantly as a consequence of the economic crisis, the State made a strategic decision to keep up the percentage of the budget devoted to health care and education, increasing at the same time spending on social protection from about 8.5 percent in 2008 to above 10.5 percent of GDP (during 2009-2012). As tax revenues decreased and the economy contracted this meant, however, in real terms cut backs for the health and education system of about 20 percent.

Infrastructure investment was reduced significantly, including in the health and educational sector, a problem that in my view requires now more attention
It is not only a smart use of funds that ensured that core social and economic rights remained protected, it was also the willingness of the society, in particular of its overwhelming female work force in the health and education sector to work overtime, accept freezing of salaries and use resources more efficiently to keep up the quality of services. Such gender imbalances caused by the financial crisis in Iceland require to be corrected, as the UN Working Group on the issue of discrimination against women in law and practice has recently stressed that visited Iceland in summer 2013.

The reintroduction of a progressive income tax system made an important contribution to secure that the most vulnerable were stronger sheltered from the effects of the crisis. In addition a wealth tax was temporarily introduced to generate revenues. While disposable income fell across the entire society, the poorest 20 % in Iceland lost between 2008 and 2010, around 9 percent of their disposable income, while the 10 percent of the wealthiest households that had accumulated assets during the boom years of the bubble economy lost 38 percent of their income. These policies also helped stabilising internal demand, as the citizens with lower incomes spend a much higher percentage of their funds on goods and services.

Rebuilding of the banking sector and protection of core social expenditures from cuts required borrowing by the Government. While in 2007 central Government debt was 23 percent of GDP, in 2013 it was 109 percent of GDP, owing to new debt taken in international markets. The new debt position reflects responsible and effective efforts of the country to minimize negative human rights impacts of the crisis.

Right to work and social security

While unemployment sky-rocked to up to about 10 percent in 2009 and 2010, it never reached the unprecedented levels in other European countries which are trapped in the debt crisis. Active labour market programmes, training and opening secondary schools and universities for learning prevented that a much larger part of the population would end up to be neither in work or training.

Companies were assisted to keep their staff at reduced working hours, while subsidising salaries. Social partners agreed on wage restraint to secure employment in the aftermath of the crisis, but decided to increase the minimum wage to protect low-income workers. Instead of shortening the duration of unemployment benefits, the Government temporarily extended unemployment benefits to a maximum duration of four years, preventing that a much larger proportion of the unemployed would end up depending on social security benefits of last resort.

But challenges remain: Unemployment of foreigners, in particular Polish citizens, reached during the crisis years more than 20 percent, and was in July 2014 still above 10 per cent, while overall unemployment has dropped below 4 per cent.

Persons depending on municipal financial aid - the support of last resort - have nearly doubled from a low of 4.280 households in 2007 to over 8.000 households in 2013. In total about 4 percent of all inhabitants of the country and 6.5 percent of all households depend on income support, with single men without children and single women with children being most dependent on financial assistance.

As of 1 of January 2015 unemployment benefits will be reduced to 2.5 years and it is expected that many long term unemployed will have to rely on the minimum social security net offered by municipalities, which are not very well prepared, both administratively and financially to take care of the increasing number of applicants expected to seek assistance. Municipalities apply different eligibility criteria, applicants enjoy different levels of benefits depending on their place of residence and these differences cannot be always justified by disparities in local living costs. A harmonized, equal and non-discriminative treatment of all applicants for the social security benefit of last resort in conformity with Art. 2 of the ICESCR appears to be missing.

Iceland has not yet specified a core minimum budget, that people and families would be required to have, in order to enjoy essential economic and social rights and be able to participate in public live, which reflects actual costs of living, although the debtor’s ombudsman has developed a reference budget for the purpose of debt mitigation.

Right to affordable housing and debt relief

Of particular concern is access to affordable and appropriate housing for the less affluent with secure legal tenure. Despite debt mitigation implemented during and after the restructuring of the banking industry many homeowners have lost their own homes, and have entered the rental market. Past policies were nearly exclusively directed to promote loan based home ownership, through mortgages provided by the commercial banks and the public owned Housing Financing Fund.

In particular young persons with children find it difficult to find affordable accommodation. Apartments for long-term renting are missing and there is a need to improve the legal protection of rent payers and expand social housing programmes.

In the aftermath of the crisis, loans indexed to foreign currency skyrocketed. They were recklessly sold to consumers breaching national law provisions as the Supreme Court of Iceland ruled in several cases brought before it since 2010, but had also been popular among the population before the banking crash, due to the spread between the local and foreign currencies. Banks engaged in a competition to offer consumers with credit, but after the crash thousands of citizens were caught in a debt trap, when the value of the Icelandic Krona depreciated drastically. Suddenly many Icelandic homeowners had private debt outstripping the value of the homes and were unable to pay their debt back to commercial banks and to the Housing Financing Fund.

The Government reacted with several debt relief schemes and by imposing moratoria on foreclosures. These measures were as well taken in response to public protest demanding debt write offs. In August 2010 it established the Office of the Debtor’s Ombudsman funded by a levy on financial institutions which can negotiate on behalf of debtors with different lenders, and new legislation for debt mitigation was introduced. While initially most requests for debt mitigation came from homeowners; this trend has shifted in 2014. More than half of all applicants for debt mitigation are now living in rented homes.

It shows a worrying trend of a smaller group of people, heavily trapped in debt, that can neither afford paying their daily living expenditures, including housing, nor pay back their debt. It is doubtful whether additional debt relief initiatives taken by the current Government this year will solve adequately the situation of these heavily indebted poor households in need for debt relief. Such targeted debt relief would not provide risks to the restructured commercial banks, which have largely written off these liabilities in their balance sheets.

Iceland continues to need an adequately equipped Debtors Ombudsman to assist over-indebted households in debt mitigation, provide advice, and improve financial literacy to prevent citizens from falling again into a debt trap.

Right to health care and education

Iceland has a universal health care system of high standard. User fees for health care have increased from about 16.4 percent in the year 2000 to 18.1 percent in 2012 of health expenditures. Since 2009, all children get access to free primary health care. Hospital services are as well free of charge. For dental care clients have to pay. A recent survey of Statistics Iceland found that the number of people that reported having skipped a dental visit because it was too expensive increased after 2008 and reached 10 per cent in 2012, while 3.7 per cent skipped a doctor’s visit as it was too expensive. The Government should be commended for having gradually introduced a scheme providing free dental health care for children.

Independent research suggests that the core functions of the schools, teaching and learning, were to a large extent protected. Therefore reduction in expenditure did not cause a school crisis in the sense that the access to education of suitable quality was threatened. This, however, may not apply to all preschools, which were harder hit by the cut-backs than the other school levels. Various cuts were made at all school levels; administrative positions were made redundant, classes became bigger, no overtime was paid and principals served as substitute teachers. Finally, at the pre-, and primary school levels, a number of schools were amalgamated.

Iceland had in 2012 one of the highest rates of early school leavers in Europe which remains a concern. The Government’s White Paper on Educational Reform identifies tackling school drop-out in secondary schools as one of its priorities. I hope that progress will be achieved in this respect.

As a preventive measure, financial literacy should be included in the curriculum of schools. The long report of the Special Investigative Commission should be summarized in a more accessible form and discussed in schools. Citizen participation and social and economic rights should become more visible in the existing curriculum on democracy and human rights, which should include more information what rights citizens have as clients of banks, and how citizens can use existing mechanisms at national or international level to ensure that their right to housing and social security is respected. This should include information about Icelandic institutions defending the rights of citizens in the social and economic sphere, which include various complaint committees, ombudspersons, consumer protection associations or agencies.

Accountability and citizenship participation

In the aftermath of the banking collapse Icelandic citizens went to the streets protesting in front of Parliament. I did not receive reports about excessive use of force by police officials, indicating the demonstrations were largely peaceful. The Government resigned and parliamentary elections were held in early 2009 bringing a new coalition to power that ruled until April 2013. Many citizens have however lost trust in established political and public institutions and new forms of citizens’ participation emerged either initiated from below or by officials that felt that something had to be done to improve dialogue with the population, ensure better participation at local or national level and to protect the society from falling apart.

For the first time in Icelandic history referenda were held on the question whether and to what extend the Government should pay back deposits by foreigners in the Icesave, a branch of the former Landsbanki. As most concerned savers in the United Kingdom and the Netherlands were covered by national banking guarantees, individuals residing in these countries were protected up to the national guarantee from losing all their deposits. The exterritorial human rights impact on small-scale savers in these countries was therefore limited, as far as I have been able to study this so far.

One of the new innovative bodies formed in early 2009 was Welfare Watch, an independent consultative body which today includes more than 35 representatives, from key ministries, municipalities, social partners and civil society, most of them working as well at grass root level. The aim was to monitor the social impact of the crisis, provide advice to State institutions and address issues on the ground. Welfare Watch managed to spread the message that during the crisis the weakest in society should be protected. The watchdog submitted several reports with recommendations, including one report that was submitted to Parliament. Welfare Watch is expected to submit in January 2015 additional recommendations how to address and guarantee the rights of persons suffering multiple forms of deprivation in Iceland and I hope that their expert advice will be duly considered by Icelandic authorities.

As a lesson learned from the costs of not having proper supervision when privatising the banking industry, the Government has implemented after the crash a range of reforms aimed at enhancing its supervisory capacities. Implementing the recently passed European legislation in this area is required to further strengthen the system. The recently established Financial Stability Council composed by representatives from the Ministry of Finance, the Central Bank and the Financial Supervisory Authority seeks to adequately monitor the macro financial situation of the country in order to take timely decisions when needed. As the Parliament had a crucial role in identifying the causes of the financial crisis, it may be considered that Parliament should play a role in the Financial Stability Council. One way might be through incorporating to its Board a representative from the Parliament or ensuring citizens oversight of the Council through a parliamentary committee.

The capacity of the judicial system to investigate alleged financial and economic criminal conduct was inadequate in comparison to the size of its international operating banking sector. The Government of Iceland established therefore in 2008 the Office of the Special Prosecutor, which is since 2011 as well tasked to investigate tax related or other economic criminal conduct. Adequate resources for the work of his Office are needed to ensure a timely and rule of law based exercise of his mandate, including investigations into past, current and future economic criminal activities.

The Icelandic Parliament decided in December 2008 to set up a Special Investigation Commission to investigate and analyse the processes leading to the collapse of the three main commercial banks in Iceland chaired by a Supreme Court judge, the Parliamentary Ombudsman, and an academic expert which submitted a detailed report to Parliament in April 2012. The Special Investigation Commission outlined as well the mistakes and negligence of entities and individuals that it deemed responsible for the banking crash, including bankers, politicians and other governmental officials in charge of supervising the financial and monetary systems.

A Parliamentary Review Committee scrutinised from December 2009 to September 2010 the report of the Special Investigation Commission. On 28 September 2010 Parliament adopted unanimously a resolution setting out the review of existing legislation, including the Constitution of the Republic of Iceland, the Accountability Act of Ministers, and legislation relating to financial markets and operations therein. While I note that some of the mentioned legislation has in the meantime been reviewed and revised, many of the mentioned laws have to date not yet been reformed.

On the same day Parliament initiated proceedings against the former Prime Minister before a High Court of Impeachment. Resolutions against other ministers failed to receive a sufficient majority in Parliament, so that they could not be examined by the High Court of Impeachment. The Prime Minister was cleared by the High Court from most charges, but sentenced for failing to call emergency meetings as foreseen under the Constitution. He has appealed to the European Court on Human Rights where his case is still under consideration.

After the banking crash senior management of the Financial Supervisory Authority and the Central Bank changed, to a large degree through resignations. However, there appears to have been hardly cases dealing with non-criminal aspects of negligent behaviour of officials, an issue which is usually dealt with by the national administrative law.

While the efforts to hold bankers accountable is something remarkable in light of the modern financial history, what explains the low degree of accountability, particularly of those governmental officials in charge of supervising the banking industry? A more sophisticated legal framework establishing the duties of public officials to protect public interest and outlining the consequences of their breaches would contribute to create the right incentives. The Parliamentarian Committee pointed out to the need of legal reform. The system of appointment of judges could be strengthened to ensure absolute independence of the judiciary branch from executive influence. This would be important to enhance accountability of governmental and public officials and, correlatively, minimize the possibility that a financial crisis may reoccur.

International human rights commitments

In 2012 the Republic of Iceland undertook during the Universal Periodic Review at the Human Rights Council several commitments to strengthen its human rights protection system, including studying the possibility of ratifying international human rights treaties and optional protocols to which Iceland is not yet party.

Subsequently a draft National Action Plan on Human Rights was developed within the Ministry of Interior in early 2013, which included the establishment of a National Human Rights Institution that would be compliant to the Paris Principles ensuring the independence of such institutions. However, this plan has to date not yet been submitted to Parliament. Iceland has remained one of the few European countries lacking an independent National Human Rights Institution, which has repeatedly been noted in recommendations of international and regional human rights mechanisms over the last decade. The time has come to fill this gap.

I further urge the Government of Iceland, to ensure that its citizens are as well entitled to send complaints to United Nations treaty bodies that have recently established individual complaints procedures, by ratifying Optional Protocols to the Convention on the Rights of the Child and to the International Covenant on Economic, Social and Cultural Rights. The way in which Iceland responded to the banking collapse shows that the Government has taken its commitments to protect social and economic rights seriously, consequently it seems appropriate that Iceland should provide as well to its citizens, including minors, access to these complaints mechanism at international level.

Concluding remarks

My message to the people of Iceland is the following: You have managed the crisis much better than other countries - but do not leave anybody behind.

In my view the largely rights compliant response to the financial crisis is not only due to conscious decisions by competent Government officials whom I had the pleasure to meet, but as well to responsible behaviour of social partners, a vibrant civil society, and many individuals that I have seen engaged in their communities working towards the common good.

More attention is required to address difficulties that immigrants face reintegrating into the labour market. Targeted debt relief is still needed and possible for of poor and highly indebted households. Ensure that all people have access to social security benefits of last resort on an equal and fair footing. Take better care of low income households struggling to find a home. A society that is rightly proud of its comprehensive social welfare system and sees children and family as its core should not tolerate that the risk for children to grow up in poverty is currently (with 12.2 percent) still higher than for the entire, mostly adult population (9.3 percent).

Further improving the regulatory framework, having a more effective institutional design of oversight on the banking industry, managing potentially destabilizing capital flows, enhancing laws on governmental officials’ accountability and strengthening judicial independence are certainly changes that would contribute to a more stable financial system, preventing the occurrence of bubbles and busts and allowing economic authorities to follow countercyclical policies. Legitimate financial systems require appropriate regulations and institutions aimed at ensuring that they serve the real economy. Yet, it is also necessary to reflect on the moral driving forces of the colossal over-borrowing that led an entire country into the crash. To what extent, and under what circumstances, debt-based-growth strategies are necessary and consistent with the full realization of human rights and happiness? The Icelandic case shows that these questions are at the core of the role currently played by financial markets in modern societies.

Thank you.


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See Committee on Economic, Social and Cultural Rights, General Comment No. 3, para. 9.
UN Document, E/C.12/ISL/CO/4 , 11 December 2012.
UN Document A/HRC/26/39/Add.1
UN document A/HRC/19/13/Add.1