Iceland bans capelin fishing

REYKJAVIK (Reuters) - Iceland said fishing for capelin in its waters was halted on Thursday over worries the breeding population has shrunk to dangerously low levels in a move analysts say could damage economic growth.

The ban will last for the rest of the year.

"Putting a halt to capelin fishing is the only option we have right now," Prime Minister Geir Haarde told a parliamentary committee on Thursday, according to Icelandic national radio.

"But of course we hope that we will find more capelin and will be able to start fishing it again," he added.

The usual yearly quota for capelin, a member of the smelt family, is for 250,000 tons. Icelandic fishermen have caught an estimated 40,000 tons so far this year.

The ban is expected to cost Iceland as much as 10 billion Iceland crowns ($149.2 million) in lost exports. Icelandic bank Kaupthing said the ban could shave 0.4-0.7 percentage point from economic growth in 2008.

"This is the second blow to Iceland's fishing industry in little over a year. The cod quota allowance was cut earlier this year, amounting to a decrease in exports in the range of 15-20 billion crowns," the bank said in a note.

But high fish product prices and a favorable exchange rate have cushioned the blows, the bank added.

The decision to stop capelin fishing comes at the instigation of the Icelandic Marine Research Institute, whose research shows there are only about 200,000-270,000 tons of the fish left in the ocean around the North Atlantic island.