Iceland

Politics:

• Analysis

  Iceland politics: Quick View - Latest opinion poll shows marked swing from

  Event

  The latest opinion poll, published on March 1st, shows that the front-running Independence Party (IP) has lost substantial support to its potential future coalition partner, the Progressive Party (PP). The rise in support for the relative newcomer Bright Future (BF) appears to have come to a halt, at least for now.

  Analysis

  The opinion poll, by Capacent Iceland, was conducted during February and is an important gauge for the general election to be held on April 27th. Support for the centre-right IP declined to 29.7%, from 35.5% in the previous monthly poll; this is its lowest level of support since May 2010. The IP's party conference was held in the last week of February and so the latest poll may not fully reflect the impact of its recent organisational and policy decisions, such as the re-election of its controversial chairman, Bjarni Benediktsson. The IP conference voted in favour of suspending Iceland's EU membership negotiations and resuming them only after a national referendum has agreed on continuing the process. This represents a tougher stance than the Eurosceptic IP had hitherto taken.

  Another opposition party standing firm against EU membership is the centrist PP. Its conference, held in early February, strengthened the party's opposition to the EU, as well as highlighting new debt-relief proposals and economic policies, many of which seem only partly formulated. The PP's recent rather populist approach appears to have paid off as its support in the latest opinion poll has reached 22.1%-its highest level since 1996-from 14.2% in the previous monthly poll.

  Levels of support for the two ailing parties of the government coalition, the centre-left Social Democratic Alliance (SDA) and the Left-Green Movement (LGM), have not changed significantly. The latest poll puts support for the SDA at 15.4%, down marginally from 15.6% in the previous monthly survey, despite its attempt to refresh its leadership with the election of a new party chairman at its conference in early February. Support for the LGM has also slipped back, to 7.4%, from 7.9% in the previous survey. The industries and innovation minister, Steingrimur Sigfusson, has stepped down as the LGM's chairman; he was replaced by education minister Katrin Jakobsdottir (consistently the most popular cabinet figure) at the party's conference in late February. Mr Sigfusson has emphasised that he is not leaving politics in general, only his role as party chairman.

  The impressive rise of the relatively new, left-leaning BF appears to have been halted: its support in the latest poll has fallen back to 16.2%, from 18.6% in the previous survey. None of the other parties would currently reach the required 5% of support required for representation in parliament.

  Parliamentary standing and opinion polls
  	2009 election		Jan 2013 poll	Feb 2013 poll	Mar 2013 poll
  	% of vote	No. of seats	% of vote	% of vote	% of vote	Projected no. of seats
  Social Democratic Alliance (SDA)	29.8	20	19.1	15.6	15.4	10
  Independence Party (IP)	23.7	16	36.3	35.5	29.7	21
  Left-Green Movement (LGM)	21.7	14	9.1	7.9	7.4	5
  Progressive Party (PP)	14.8	9	13.1	14.2	22.1	16
  Bright Future (BF)	-	-	12.3	18.6	16.2	11
  Dawninga	-	-	3.0	2.1	1.3	0
  Right Green	-	-	2.6	2.5	3.2	0
  Pirate Party	-	-	2.5	2.1	2.3	0
  Others	10.0	4	2.0	1.5	2.4	0
  Total	100.0	63	100.0	100.0	100.0	63
  Memorandum items
  Combined support SDA-LGM	51.5	34b	28.2	23.5	22.8	15
  Combined support IP-PP	38.5	25	49.4	49.7	51.8	37
  Note: a Dawning is the new incarnation of the Citizens' Movement, which had four members of parliament elected in 2009 but is no longer represented in parliament as a separate group. b Since 2009 the government's majority has turned into a minority. After several defections, the current combined seat tally is 30.
  Sources: The Economist Intelligence Unit; Capacent Iceland; Icelandic National Broadcasting Service (RUV).

  March 06, 2013

• Background

  Iceland: Key figures

  Geir Haarde

  Leader of the Independence Party (IP) since October 2005, Mr Haarde became Iceland's new prime minister in June 2006 following the resignation of the Progressive Party (PP) leader, Halldor Asgrimsson. Mr Haarde served as minister of finance between 1998 and 2005. Mr Haarde has a business-like and understated manner, and has repeatedly been rated as the most trusted politician in Iceland. He is well respected within the business community and has rather close ties with parliamentarians from other parties. Mr Haarde lacks some of the charisma of his predecessor, David Oddson, and has been criticised for avoiding difficult political decisions, particularly in relation to divisions between IP Rejkjavik city councillors, but he remains the country's dominant political figure.

  Ingibjorg Solrun Gisladottir

  Leader of the Social Democratic Alliance (SDA) and minister for foreign affairs, Ms Gisladottir came to prominence as a popular and respected mayor of Reykjavik from 1994 to 2002. She was the SDA's prime ministerial candidate in the 2003 general election, before being elected party leader in May 2005, after winning twice as many votes from members as Ossur Skarphedinsson (the current minister for industry), who had led the party since 2000. Despite her previous popularity as mayor, the party initially lost electoral support under her leadership and she has attracted criticism for her somewhat abrasive manner and lack of control of elements of her party that remain loyal to Mr Skarphedinsson. That said, the SDA's inclusion in the coalition has helped to silence some of the internal criticism of Ms Gisladottir.

  Steingrimur Sigfusson

  Leader and founder of the Left-Green Movement (LGM), Mr Sigfusson has long enjoyed wide popularity and respect, even outside the ranks of the far left. He consistently receives high ratings for honesty and trustworthiness among the electorate. Mr Sigfusson's position has nevertheless been weakened slightly for having missed the opportunity of taking the party into government and he has suggested that he might decide to leave politics before the next election.

  Gudni Agustsson

  Gudni Agustsson was elected chairman of the Progressive Party (PP)—its third leader in less than two years—following the PP's poor performance in the 2007 general election. Mr Agustsson was a popular minister for agriculture from 1999 to May 2007. He is faced with the difficult task of rebuilding a party that lost almost one-half of its seats in parliament at the election and is unsure of its role in the current political landscape. Mr Agustsson is expected to move the party away from its relatively pro-market policies of the past 12 years, emphasising instead the PP's rural roots.

  Gudjon A Kristjansson

  The Liberal Party (LP) leader is a former IP member of parliament and fishing captain from the West Fjords. He is immensely popular in his home region among fishermen who are unhappy with the current fishing quota system (the overhaul of which forms the basis of the LP's political platform).

  The legislature

  The Republic of Iceland is a parliamentary democracy based on the constitution of 1944, which has been amended seven times, most recently in 1999. Proposals for further revisions are currently being drafted by a special commission, with the president's role in approving legislation being one of the issues under review. Legislative power is vested in a unicameral parliament (Althing), which is elected for a four-year term. The 63 members of parliament are elected from six constituencies on the basis of a system of proportional representation. Each constituency elects eight to ten parliamentary seats. The remaining nine seats are distributed to constituencies and allocated to political parties so that their parliamentary representation reflects as closely as possible the number of votes each party received. A party must have won at least 5% of the national vote in order to be eligible for these proportionally distributed seats.

  The cabinet

  Executive power is vested in the cabinet, headed by the prime minister, which is responsible to the Althing. The cabinet is officially appointed by the president after a general election, although this process is usually conducted by leaders of the political parties, who decide among themselves which parties can form the cabinet and how its seats in the cabinet are distributed (under the condition that it has majority support in parliament). The prime minister is usually appointed from the largest coalition partner. The current cabinet consists of six ministers from the IP and six from the SDA. A reshuffle can be expected in 2009 as a member of the SDA is to become president of the parliament.

  The president

  The president is the head of state and is elected for a four-year term by a direct vote of the electorate. Parliamentary bills currently require the president's signature to be enacted, but this is under debate. Olafur Ragnar Grimsson became the fifth president in 1996 and was re-elected in 2000, 2004 and 2008.

  Local government

  There are currently 79 municipalities. Over the past decade governments have pursued an active decentralisation programme, transferring more competencies to the local level. The municipalities are responsible for pre-school education, waste management, social services, public housing and public transport. Municipal elections are held every four years, most recently in May 2006.

  The judiciary

  The judicial system is composed of ordinary courts, special courts and the Supreme Court in Reykjavik. There are nine justices on the Supreme Court, all appointed for life by the president on the binding recommendation of the minister of justice. They are dismissible only by the court. The Supreme Court reviews all judicial applicants. The minister has in recent years recommended people that have not been favoured by an advisory committee. This has led to charges of political nepotism and calls for changes to the appointment process.

  Media services

  Iceland has a free press. The main daily newspapers are Morgunbladid, Frettabladid, 24 stundir and DV. Frettabladid and Morgunbladid are published daily; DV and 24 stundir are published five times a week. Morgunbladid relies mainly on subscriptions. Frettabladid, its main competitor, has eclipsed the venerable Morgunbladid in readership. It is distributed free of charge to households in the capital area, as well as in most other major population centres. 24 stundir, owned by Morgunbladid, is also distributed free of charge.

  The Icelandic National Broadcasting Service (RUV) is an independent public-service broadcaster, operating one television channel and two radio stations. Iceland's largest private-sector media corporation, 365 (formerly Nordurljos), was de-listed from the stockmarket in 2008. The company is split into a newspaper arm (Frettabladid and DV) and a broadcasting arm. Seven radio channels are broadcast across Iceland in addition to a number that are only heard in Reykjavik or other regions. Seven TV channels are broadcast in Icelandic, with a large number of foreign channels available via satellite and cable.

  Democracy index (for methodology, see Appendix)

  The Economist Intelligence Unit's 2006 Democracy index places Iceland in the top group of full democracies alongside other Nordic countries. It scores high in terms of electoral process, political culture, civil liberties and government functioning but, although voter turnout is relatively high, it does not show as strongly as some other countries in levels of political participation. There is also only moderate confidence in political parties and this may even have weakened recently.

  Democracy index
  	Overall score	Overall rank	Electoral process	Government functioning	Political participation	Political culture	Civil liberties	Regime type
  Iceland	9.65	3	10.00	9.64	8.89	10.00	9.71	Full democracy
  Overall and component scores are on a scale of 0 to 10; overall rank is out of 167 countries.

  Download text file (csv format)

  August 05, 2008

• Structure

  Iceland: Political structure

  Official name

  Republic of Iceland

  Form of state

  Parliamentary republic

  Legal system

  Based on the constitution of 1944

  National legislature

  Althingi (parliament) of 63 members elected for a four-year term

  Electoral system

  Universal direct suffrage over the age of 18; proportional representation

  National elections

  Most recent legislative election held on April 25th 2009. Next election due by April 2013

  Head of state

  President, directly elected for a four-year term; Olafur Ragnar Grimsson (an independent, but previously part of the left wing of politics) was elected for a fifth successive four-year term in June 2012. The next presidential election is due in June 2016

  National government

  Responsible to the Althingi. A coalition of the Social Democratic Alliance and the Left-Green Movement was formed on May 10th 2009. Some ministerial changes were announced on January 1st 2012

  Main political parties

  Social Democratic Alliance (SDA; 19 seats); Independence Party (IP; 16 seats); Left-Green Movement (LGM; 12 seats); Progressive Party (PP; nine seats); the Movement (three seats)

  Ministers

  Prime minister: Johanna Sigurdardottir (SDA)

  Education, science & culture: Katrin Jakobsdottir (LGM)

  Environment & natural resources: Svandis Svavarsdottir (LGM)

  Finance & economic affairs: Katrin Juliusdottir (SDA)

  Foreign affairs: Ossur Skarphedinsson (SDA)

  Industries & innovation: Steingrimur Sigfusson (LGM)

  Interior: Ogmundur Jonasson (LGM)

  Welfare: Gudbjartur Hannesson (SDA)

  Central Bank governor

  Mar Gudmundsson

  January 01, 2013

• Outlook

  Iceland: Key developments

  OVERVIEW

  Despite some likely tensions between the two coalition parties, the Independence Party (IP) and the Social Democratic Alliance (SDA), the coalition is expected to hold together. A sharp economic slowdown is likely to result in a government budget surplus of 5.2% of GDP in 2007 moving into deficit by 2009. In an attempt to fight rising inflation exacerbated by a depreciating currency, the Central Bank of Iceland will keep interest rates at their present level of 15.5% for the rest of 2008 and may even move them higher. Inflation is forecast to begin to slow at the end of 2008 and fall to an average of 10% in 2009. With wages eroded by high inflation, private consumption is likely to fall in both 2008 and 2009. Investment fell sharply in 2007 and is likely to fall further in 2008 and 2009. The Economist Intelligence Unit expects overall GDP to grow by 2% in 2008 and to be flat in 2009.

  Key changes from last month

  Political outlook

  As a result of high inflation the popularity of the larger governing party, the IP, and of the prime minister, Geir Haarde, have continued to decline. That of the other governing party, the SDA, is less affected by economic conditions.

  Economic policy outlook

  Despite inflation rising from 13.6% in July to 14.5% in August, the highest figure in the OECD, the Central Bank has kept its intervention rate at 15.5%. Inflation should begin to ease in the coming months, but if it does not do so then the Central Bank may raise its rate further.

  Economic forecast

  Although revised figures show year on year GDP growth in the second quarter of 2008 at 4.4%, we still expect the economy to come to a halt in the second half of 2008 and in 2009 as a result of falling private consumption and investment.

  September 17, 2008

Economy:

• Background

  Iceland: Economic background

  Gross domestic product by sector
  (% of total)
  	2003	2004	2005	2006	2007
  Agriculture, hunting & forestry	1.5	1.4	1.3	1.1	1.4
  Fishing & fish processing	6.0	5.0	4.6	4.5	4.4
  Manufacturing	13.2	12.8	10.2	11.0	10.9
  Electricity, gas & water supply	3.6	3.7	4.0	4.0	4.3
  Construction	7.6	8.5	9.5	10.4	11.0
  Services	68.1	68.6	70.4	69.0	68.0
  Source: Statistics Iceland.

  Download text file (csv format)

  As in other developed economies, services form the bulk of economic activity, accounting for 68% of GDP in 2007. The marine sector was the most important source of export revenue until 2007, but recent heavy investment in aluminium production and lower fishing quotas made industrial products the most important export sector in the first half of 2008. Fisheries contributed 4.4% of GDP in 2007, down from about 17% in 1980. This contrasts sharply with the pace of development in power-intensive industry (particularly in the aluminium sector) in recent years, utilising Iceland's vast hydroelectric and geothermal resources. The largely unspoiled natural environment has also spurred the development of a rapidly expanding tourist industry, now a major source of foreign revenue. At the same time, human capital-intensive industries such as financial services, information technology (IT) and biotechnology have grown in size and importance over the past decade. Many of the growth leaders in Iceland are specialised small or medium-sized enterprises with expertise in research and development (R&D).

  August 05, 2008

• Structure

  Iceland: Economic structure

  Economic structure: Annual indicators

  	2008a	2009a	2010a	2011a	2012b
  GDP at market prices (Ikr bn)	1,480.3	1,497.6	1,536.5	1,626.3	1,774.1
  GDP (US$ bn)	16.8	12.1	12.6	14.0	14.1
  Real GDP growth (%)	1.2	-6.6	-4.0	2.6	2.0
  Consumer price inflation (av; %)	12.7	12.0	5.4	4.0	5.2
  Population (m)	0.32	0.32	0.32	0.32b	0.32
  Exports of goods fob (US$ m)	5,399	4,050	4,603	5,344	5,175
  Imports of goods fob (US$ m)	-5,699	-3,318	-3,621	-4,506	-4,624
  Current-account balance (US$ m)	-4,471	-1,433	-1,024	-953	-594
  Foreign-exchange reserves excl gold (US$ m)	3,515	3,813	5,699	8,450	6,000
  Exchange rate Ikr:US$ (av)	87.95	123.64	122.24	115.95	126.19
  a Actual. b Economist Intelligence Unit estimates.

  Download the numbers in Excel

  Origins of gross domestic product 2011	% of total	Components of gross domestic product 2011	% of total
  Public administration	20.3	Private consumption	51.9
  Manufacturing	19.7	Government consumption	25.3
  Financial services & real estate	17.1	Fixed investment	14.0
  Wholesale & retail trade	16.2	Stockbuilding	0.3
  Agriculture, forestry and fishing	8.5	Exports of goods & services	59.3
  Professional, scientific and technical services	6.9	Imports of goods & services	50.8
  Principal exports fob 2011	Ikr bn	Principal imports cif 2011	Ikr bn
  Marine products	252	Industrial supplies	165
  Aluminium	245	Capital goods (excl transport)	114
  Other manufacturing products	90	Consumer goods	69
  Agricultural products	9	Transport equipment	44
  Main destinations of exports 2011	% of total	Main origins of imports 2011	% of total
  Netherlands	33.3	Norway	16.0
  Germany	14.8	US	10.8
  UK	8.9	Germany	7.9
  Norway	4.4	Netherlands	7.4

  Download the numbers in Excel

  Download text file (csv format)

  January 01, 2013

• Outlook

  Iceland: Country outlook

  Iceland: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The coalition of the centre-left Social Democratic Alliance (SDA) and the Left-Green Movement (LGM), in power since May 2009, suffers from internal divisions and faces strong opposition from the centre-right Independence Party (IP) and the centrist Progressive Party (PP).

  ELECTION WATCH: The next general election is due in April 2013. Opinion polls suggest that the IP will emerge as the largest party; the next government is likely to be a coalition between it and the smaller PP. Such a coalition is expected to be more stable than the shaky SDA-LGM alliance. The IP was the dominant governing party for decades, before being forced from office in 2009. Despite its high share of responsibility for the economic and financial collapse of 2008, it is again the most popular party in opinion polls. It has gained support by arguing that the SDA-LGM coalition is weak and unable to follow through on its policy agenda.

  INTERNATIONAL RELATIONS: The collapse of the currency and the banking system in late 2008 led to a temporary shift in favour of EU membership, for which Iceland applied in 2010. EU accession negotiations are ongoing, but are a particularly difficult issue for the coalition, as the LGM strongly opposes EU membership. The SDA is the only party in parliament to back accession. However, public opinion has swung against membership. EU accession is not expected, either because a new, IP-led government would oppose it, or because it would be defeated in a referendum (which is currently unlikely to be held).

  POLICY TRENDS: Policy should continue to be driven by the need to stabilise the economy, rebuild the banking system after the collapse of the three main commercial banks and the currency in late 2008, and narrow the government deficit. An IMF programme providing for fiscal and banking reform, and currency stabilisation, was put in place in November 2008. The Fund completed its final review in August 2011, leading to the last disbursement of the Ikr200bn (US$1.6bn) loan. Although co-operation with the IMF will continue, it will no longer be a significant policy anchor. Despite recent repayments ahead of schedule of some loans received from the IMF and Nordic countries, Iceland still holds foreign-exchange reserves equivalent to the IMF's benchmark of more than 100% of its short-term external debt (and this is expected to remain so in the medium term).

  ECONOMIC GROWTH: The Economist Intelligence Unit forecasts economic growth of 1.7% in 2013 and 2.1% in 2014, compared with estimated growth of 2% in 2012. In the first quarter of 2012 seasonally unadjusted real GDP expanded by a robust 4.2% year on year, driven largely by strong domestic demand. However, real GDP growth slowed to just 0.5% in the second quarter, dragged down by lower investment. Domestic demand is still recovering from the collapse in 2008-10. Total domestic demand expanded by 4.3% in 2011 after falls of 2.8% in 2010, 19.6% in 2009 and 8.6% in 2008. Economic activity in the second half of 2012 should be supported by solid private consumption (partly owing to lower inflation), and so domestic demand growth is estimated to accelerate to 4.7% in 2012, before decelerating to 1.3% in 2013 and 1.6% in 2014, as the recovery in private consumption, investment and stockbuilding eases. External demand is estimated to weaken in the second half of 2012, amid a slowdown in euro area export markets, but the external sector should become more supportive of economic activity later in the forecast period, given an expected mild recovery in the euro area (especially in 2014).

  INFLATION: We estimate average inflation of 5.2% in 2012. We expect this to moderate to 4.1% in 2013 and 3.8% in 2014, given weaker domestic demand, base effects and higher interest rates. Inflation jumped from 5.3% in December 2011 to 6.5% in January 2012, but subsequently moderated, to 4.1% by August. However, inflation rose to 4.5% by November amid a weak currency (boosting import price inflation). Nevertheless, we expect price pressures to ease slowly in the coming months, given tighter monetary policy, albeit not sufficiently to reduce inflation to the Central Bank of Iceland's target of 2.5% in the forecast period.

  EXCHANGE RATES: The krona depreciated sharply against the euro and the US dollar in 2008 and the first half of 2009, but has since recovered some ground as a result of strict capital controls. In 2012 the krona was volatile, weakening month on month against the euro between January and April, appreciating in May-August as the euro zone crisis intensified, and depreciating again from September as investor confidence improved in the euro area. In November the krona was around 8.5% cheaper against the US dollar than a year earlier, and around 2.6% cheaper against the euro. At the end of November it traded at Ikr163.5:EUR1 and Ikr125.6:US$1. We expect the krona to remain fairly stable on average during the forecast period, given that capital controls are likely to remain in place until well after the election in 2013.

  EXTERNAL SECTOR: Merchandise and services trade moved from a deficit in 2008 to a surplus in 2009-12 because of lower imports and moderately higher export earnings. The current account has been kept substantially in deficit by a large income deficit, boosted by bank restructuring. With import growth slightly outpacing export growth in 2012, the trade and services balances narrowed in 2012. However, the income deficit narrowed even more, given the waning effect of bank restructuring, leading to a smaller current-account deficit in 2012 (an estimated 4.2% of GDP, compared with 6.8% in 2011). In 2013-14, with export growth outperforming import growth, the trade and services surpluses should expand slightly as the income deficit narrows further, resulting in further improvements in the current-account deficit, to 2.4% of GDP in 2013 and 1.3% in 2014.

  January 07, 2013

Country Briefing

Total land area

Total surface area is 103,000 sq km, but only 21,000 sq km can be used for agriculture. Glaciers, lava fields and lakes comprise 26% of the total area, 54% is barren land and most of the remaining 20% is used for grazing

Population

319,575 (January 1st 2012)

Main towns

January 1st 2012:

Reykjavik (capital): 118,814

Kopavogur: 31,205

Hafnarfjordur: 26,486

Akureyri: 17,875

Reykjanesbaer: 14,137

Climate

Cool temperate oceanic; highly changeable, influenced by the warm Gulf Stream and Arctic currents

Weather in Reykjavik (altitude 18 metres)

Hottest month, July, 10.6°C; coldest month, January, -0.5°C; driest month, May, 44 mm (average monthly rainfall); wettest month, October, 86 mm

Language

Icelandic, belongs to the Nordic group of Germanic languages, descended from Old Norse

Weights and measures

Metric system

Currency

1 krona (Ikr) = 100 aurar

Fiscal year

Calendar year

Time

GMT, all year

Public holidays

January 1st; April 5th, 6th, 8th and 9th; May 1st, 17th, 27th and 28th; June 17th; August 6th; December 25th

January 01, 2013