THE ECONOMY OF ICELAND CENTRAL BANK OF ICELAND CENTRAL BANK 1998 SPRING The Economy of Iceland May 1998 Published semi-annually by the International Department of the Central Bank of Iceland, 150 Reykjavík, Iceland ISSN 1024 - 0039 REPUBLIC OF ICELAND People Population.......................................272,064 (December 1, 1997) Capital.............................................Reykjavík, 106,617 (December 1, 1997) Language........................................Icelandic; belongs to the Nordic group of Germanic languages Religion...........................................Evangelical Lutheran (95%) Life expectancy...............................Females: 81 years , Males: 76 years Governmental System Government ....................................Constitutional republic Suffrage ..........................................Universal, over 18 years of age Legislature ......................................Alþingi (Althing); 63 members Election term...................................Four years Economy Monetary unit ..................................Króna (plural: krónur); currency code: ISK Gross domestic product..................527 billion krónur (US$ 7.3 billion) in 1997 International trade...........................Exports 36% and imports 36% of GDP in 1997 Per capita GDP...............................1,938 thousand krónur (US$ 26.921) in 1997 Land Geographic size..............................103,000 km2 (39,768 mi2) Highest point...................................2,119 m (6,952 ft) Exclusive economic zone ...............200 nautical miles (758,000 km2 \ 292,680 mi2) Climate Cool temperate oceanic; highly changeable, influenced by the warm Gulf Stream and Arctic currents Republic of Iceland Credit Ratings Foreign Currency Domestic Currency long-term short-term long-term short-term Moody's Investors Service Aa3 P-1 Aaa P-1 Standard & Poor's A+ A-1+ AA+ - TABLE OF CONTENTS I. THE REPUBLIC OF ICELAND Geography and Population...............................................................................................................7 Constitution, Government and Political Parties...............................................................................7 Membership in International Organizations and Foreign Policy ....................................................8 II. RECENT DEVELOPMENTS AND ECONOMIC PROSPECTS Economic Growth and Expenditure...............................................................................................10 Foreign Trade and the Balance of Payments.................................................................................11 Wages and Unemployment............................................................................................................13 Public Finances ..............................................................................................................................14 Monetary Policy.............................................................................................................................15 III. THE ECONOMY Fishing and Fish Processing ..........................................................................................................18 Manufacturing................................................................................................................................20 Agriculture .....................................................................................................................................21 Energy ............................................................................................................................................21 Transport and Communications.....................................................................................................22 Tourism ..........................................................................................................................................22 The Labour Force and Labour Relations.......................................................................................22 Structural Reforms .........................................................................................................................23 The Environment............................................................................................................................23 IV. FOREIGN TRADE AND BALANCE OF PAYMENTS ............................................................. Foreign Trade.................................................................................................................................24 Balance of Payments......................................................................................................................25 V. FOREIGN EXCHANGE .................................................................................................................. Foreign Exchange Rates ................................................................................................................31 Foreign Exchange Regulations and Direct Investments................................................................32 Foreign Exchange Reserves...........................................................................................................32 VI. FINANCIAL MARKETS................................................................................................................ Financial Markets Developments ..................................................................................................34 Commercial Banks and Savings Banks .........................................................................................34 Other Credit Institutions ................................................................................................................34 The Securities Market....................................................................................................................35 Institutional Investors.....................................................................................................................36 The Central Bank ...........................................................................................................................37 Supervision and Regulations..........................................................................................................38 Monetary Policy.............................................................................................................................39 VII. PUBLIC FINANCE........................................................................................................................ Central Government.......................................................................................................................40 Local Government..........................................................................................................................42 Social Services ...............................................................................................................................42 VIII. FOREIGN DEBT.......................................................................................................................... Treasury Foreign Debt ...................................................................................................................44 Debt Service...................................................................................................................................47 Debt Service Record ......................................................................................................................47 Credit Ratings ................................................................................................................................47 TABLES Table 1: Election Results ..................................................................................................................................8 Table 2: Membership in International Organizations .......................................................................................9 Table 3: Output and Expenditure....................................................................................................................11 Table 4: Basic Economic Indicators ...............................................................................................................17 Table 5: Export by Commodity Groups .........................................................................................................26 Table 6: Imports by Economic Category........................................................................................................27 Table 7: Geographic Distribution of Foreign Trade .......................................................................................28 Table 8: Balance of Payments.........................................................................................................................29 Table 9: Current Account as Percent of GDP..................................................................................................30 Table 10: Exchange Rates................................................................................................................................32 Table 11: Foreign Exchange Reserves.............................................................................................................33 Table 12: Summary View of the Financial Markets........................................................................................35 Table 13: Securities in the Domestic Market...................................................................................................36