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DE RUEHRK #0269/01 3191703
ZNR UUUUU ZZH
P 141703Z NOV 08
FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC PRIORITY 3890
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEKJCS/SECDEF WASHDC
RUEAIIA/CIA WASHDC
RUEKDIA/DIA WASHDC

UNCLAS SECTION 01 OF 02 REYKJAVIK 000269 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR EUR/NB 
OSLO FOR DATT 
DOD FOR OSD-P (FENTON) 
 
E.O. 12958: N/A 
TAGS: PGOV EFIN PREL MARR ODIP IC
SUBJECT: ICELAND: MFA SLASHES BUDGET, WILL REPLACE AMBASSADOR TO 
U.S. AS PART OF RESHUFFLE 
 
¶1. (SBU) Summary: Iceland's Foreign Minister has announced a twenty 
percent reduction in the Ministry's budget for FY 2009. Four 
Icelandic missions will be closed down and the positions of six 
Ambassadors, who are retiring, will not be filled. Some Icelandic 
foreign service staff at overseas posts will be moved back to 
Reykjavik, and nonessential travel has been frozen. Iceland's 
international aid contribution will be reduced drastically and the 
newly established defense budget will be slashed, though MFA 
officials stress to us they are trying to avoid a direct operational 
impact.  As part of the fallout, Iceland's Ambassador to the United 
States will be transferred several years ahead of schedule in early 
2009, though we have been assured in Reykjavik that the MFA will 
make staffing in Washington one of its top priorities.  With the 
cuts, the Foreign Minister is sending a clear signal that she will 
be demanding fiscal responsibility from the coalition's other 
ministers.  End Summary. 
 
¶2. (U) On November 12, Foreign Minister Ingibjorg Solrun Gisladottir 
announced Ministry for Foreign Affairs (MFA) plans to cut its 
expenditures in FY 2009. In the context of the current economic 
crisis, the MFA is the first ministry to propose cutting its 
allocations in the draft budget bill currently with the Althingi 
(parliament).  The MFA plans to cut a total of ISK 2.3 billion 
(roughly $17 million) or 20 percent of its share of the proposed 
2009 budget. Most notably, four Icelandic missions will be closed: 
the Icelandic Embassy in Pretoria, South Africa; the Permanent 
Mission to the Council of Europe in Strasbourg, France; the 
Permanent Mission to the United Nations Agencies in Rome; and an 
Icelandic International Development Agency office in Colombo, Sri 
Lanka that handles Iceland's development aid. Six Icelandic 
Ambassadors will retire in 2009: two at the beginning of the year 
and four later in the year; they will not be replaced, thereby 
reducing a major salary expense for the MFA. FM Gisladottir 
appointed one new Ambassador, Kristin Arnadottir, who previously was 
a Special Envoy for Iceland's bid for a UN Security Council seat and 
will now serve in effect as her Chief of Staff. 
 
¶3.  (SBU) Iceland's diplomatic presence in the U.S. will also be 
affected.  Ambassador to the United States Albert Jonsson will leave 
his post in early 2009 to head the Icelandic liaison office in the 
Faroe Islands. Jonsson's departure will shorten his tenure by 
several years from the traditional ambassadorial tour of duty, as he 
has only been in Washington a little less than two years.  Post had 
also initially understood that the Deputy Chief of Mission post in 
Washington would not be filled when the incumbent transfers next 
summer; however, senior MFA officials here tell Ambassador that the 
MFA is committed to staffing Washington with the best people it can 
find.  In New York City, two positions at the Consulate General will 
be moved to Iceland, and the position of Consul General will not be 
filled when the current Consul General retires at the end of this 
year.  This is part of a worldwide shift in which foreign service 
staff at different overseas posts will be moved back to Reykjavik to 
work at the MFA main office. 
 
¶4. (SBU) The cost cutting will also affect defense-related spending. 
The MFA proposes that this be cut by ISK 257 million (about $1.9 
million), from the previous allocation of ISK 1.4 billion (roughly 
$10.3 million). Post learned from a contact at the Icelandic Defense 
Agency that the MFA had simply notified them that their budget had 
been cut by a certain percentage, but that the details would be left 
up to the agency. The contact did not indicate what that percentage 
was. In the announcement, the FM suggested that the Icelandic 
Defense Agency would reduce the frequency of air policing by other 
NATO member states from four to three deployments annually. 
However, in a subsequent conversation with Ambassador, MFA officials 
stressed that they were looking first at overtime and "inflated" 
salaries at the IDA as targets for cuts.  The MFA is making every 
effort to avoid cuts that will have a direct operational impact on 
the IDA. 
 
¶5. (U) The MFA has also proposed to lower Iceland's contribution to 
international aid. Allocations to this spending item would decrease 
by ISK 1.67 billion (approximately $12.3 million). The GOI planned 
to contribute 0.35 percent of GNP to international aid, but after 
the proposed reduction the share will be 0.24 percent of GNP. The 
GOI had hoped to reach the UN benchmark of 0.7 percent of GNP in the 
next couple of years, but the cost-cutting measures at the MFA will 
without a doubt put that goal on hold for the unforeseeable future. 
Initial reaction from the NGO community here was measured; the Head 
of the Icelandic Human Rights Center, which has long pressed the MFA 
to increase development aid, said the cuts were "understandable" 
given the economic situation in Iceland. 
 
REYKJAVIK 00000269  002 OF 002 
 
 
 
¶6. (U) One of the MFA's showpiece public diplomacy and trade 
promotion tools also came under the knife. The MFA had expected to 
spend ISK 485 million (about $3.6 million) on Iceland's 
participation in the World Exposition at Shanghai in 2010. The MFA 
now proposes that only ISK 140 million (about $1 million) be spent 
on the EXPO. This is a 71-percent reduction from the total budgeted 
amount. 
 
¶7. (SBU) Comment: The Foreign Minister is the first agency head here 
to announce what specific programs she will cut in light of 
Iceland's economic collapse.  She obviously intends to use this 
example to press other ministries to follow her lead.  Some are 
concerned that closure of embassies will be a mistake in the long 
run, but cuts here and in defense spending address two of the most 
commonly-criticized areas of the MFA's budget: expensive overseas 
operations and defense spending in a country without a military.  On 
the other hand, bloggers and pundits are having a field day with the 
appointment of Kristin Arnadottir, a long-time friend and colleague 
of FM Gisladottir, as Ambassador.  Observers also see political 
motives in the transfer of Ambassador Jonsson from the United States 
to the Faroe Islands, with some calling it humiliating for both 
Jonsson and his long-time mentor David Oddsson, former PM and 
current Central Bank Chairman.  Oddsson and Gisladottir are known to 
be political rivals, so the shift is unsurprising in that regard. 
That said, we expect that the MFA will place a priority on staffing 
the Washington Embassy well.  End Comment. 
 
VAN VOORST