Iceland [1990/1991]

95 Pages·1991·4.633 MB·English

by  OECD

OECD
URVEY!
©ECO
ECONOMIC SURVEYS
ICELAND
ORGANISATION FORECONOMIC CO-OPERATIONANDDEVELOPMENT
PursuanttoArticle 1 oftheConventionsignedinParison 14th
December1960,andwhichcameintoforceon30thSeptember1961,the
Organisation for Economic Co-operation and Development (OECD)
shallpromotepoliciesdesigned:
to achieve the highest sustainable economic growth and
employment and a rising standard of living in Member
countries,whilemaintainingfinancialstability,andthusto
contributetothedevelopmentoftheworldeconomy;
to contribute to sound economic expansion in Memberas
well asnon-membercountries in theprocessofeconomic
development;and
to contribute to the expansion of world trade on a
multilateral, non-discriminatory basis in accordance with
internationalobligations.
The original Member countries of the OECD are Austria,
Belgium,Canada,Denmark,France,Germany,Greece,Iceland,Ireland,
Italy,Luxembourg,theNetherlands,Norway,Portugal,Spain,Sweden,
Switzerland,Turkey,theUnited Kingdom andtheUnited States. The
followingcountriesbecameMemberssubsequentlythroughaccessionat
the dates indicated hereafter: Japan (28th April 1964), Finland (28th
January 1969),Australia(7thJune 1971)andNewZealand(29thMay
1973). TheCommissionoftheEuropeanCommunitiestakespartinthe
workofthe OECD(Article 13oftheOECDConvention). Yugoslavia
takespartinsomeoftheworkoftheOECD(agreementof28thOctober
1961).
Publiéégalementen français.
©OECD 1991
Applicationsforpermissiontoreproduceortranslate
allorpartofthispublicationshouldbemadeto:
HeadofPublicationsService,OECD
2,rueAndré-Pascal,75775PARISCEDEX 16,France
Contents
Introduction 9
I. Recent economic developments and prospects 11
Recent developments 11
Prospects 19
II. The Policy environment 25
The change in policy regime 25
Structural policies 28
Fiscal policy 33
Monetary and exchange rate policy 37
III. The Labour market 42
Labour market performance 42
Cyclical adjustment 44
Medium-term adjustment 50
IV. Conclusions 54
Notes and references 59
Annexes
I. Wage-price behaviour in Iceland 62
II. Calendar of main economic events 67
Statistical annex 71
Structural annex 83
Tables
Text
1. Demand and output 14
2. Gross fixed asset formation, 1986-90 15
3. Current account and net external debt 16
4. Labour market conditions 18
5. Economic impact of the Atlantal project 22
6. Exports by commodity group, 1970-89 23
7. Deficits, money growth and inflation 26
8. Treasury finances 34
9. Breakdown of Treasury revenue and expenditure 35
10. Liquidity ratios and reserve requirements 38
11. The real exchange rate of the krôna 40
12. Unemployment benefits in the Nordic countries, 1987 45
13. Distribution of employment by sector 51
14. Distribution of employment by region 52
Annexes
Al. Variability in Iceland and other OECD countries 62
A2. Inflation variability in Iceland and other OECD countries 63
A3. Sacrifice ratios in Iceland and other OECD countries 64
Statistical annex
A. Supply and use of resources, current prices 72
B. Supply and use of resources, constant prices 73
C. Production and employment 74
D. Gross fixed asset formation and national wealth, current prices 75
E. Gross fixed asset formation and national wealth, constant prices 76
F. Balance of payments, OECD basis 77
G. Central government and social security income and expenditure 78
H. Fish catch, wages and prices 79
I. Foreign trade, total and by area 80
J. Foreign trade by commodity group 81
K. Money and credit 82
Structural annex
L. Public sector 84
M. Labour market 85
Diagrams
1. Aggregate economic performance 12
2. The fish catch 13
3. Real wages and disposable income 17
4. Inflation performance 19
5. Immigration and the business cycle 44
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BASIC STATISTICS OF ICELAND
THE LAND
Area(1000sq.km) 103 Unproductivearea(1000sq.km) 82
Productivearea(1000sq.km) 21 ofwhich:
ofwhich: Glaciers 12
Cultivatedarea 1.1 Otherareadevoidofvegetation 70
Roughgrazings 20
THE PEOPLE
Population,1stDecember1989 253482 Occupationaldistribution,1988(percent):
Netincrease1981-89,annualaverage Agriculture 5.1
(percent) 1.1 Fishingandfishprocessing 11.9
Othermanufacturing 13J
Construction,total 9.2
Commerce 16.0
Communications 6.6
Servicesandother 37.9
100.0
GOVERNMENT AND PARLIAMENT
1987 1991
Parliament,numberofseats:
IndependenceParty(Lib.Cons.) 18 26
ProgressiveParty(Agrarians) 13 13
Peoples'Alliance(Socialists,Communists) 8 9
SocialDemocraticParty 10 10
Citizen'sParty 5 -
Women'sAlliance 6 5
Other 3 -
63 63
Lastgeneralelection:April1991
PRODUCTION AND CAPITAL FORMATION
Grossnationalproductin1989: Grossfixedcapitalformationin1989:
IKrmillion 280701 IKrmillion 54500
Perhead,USdollars 19329 PercentofGNP 19.4
FOREIGN TRADE
Exportsofgoodsandservicesin1989, Importsofgoodsandservicesin1989,
percentofGNP 38.8 percentofGNP 35.8
Mainexportsin1989(percent): Importsin1989,byuse(percent):
Fishproducts 70.9 Consumergoods 32.1
Aluminium 12.9 Investmentgoods 31.4
Othermanufacturingproducts 11.7 Intermediategoods(excl.fuels) 27.8
Agriculturalproducts 1.7 Fuelsandlubricants 8.7
Miscellaneous 2.7
THE CURRENCY
Monetaryunit:Krona CurrencyunitsperUSdollar,
averagesofdailyfigures:
Year1990 58.4
April1991 59.96
Note: Aninternationalcomparisonofcertainbasicstatisticsisgiveninanannextable.
ThisSurveyisbasedontheSecretariat'sstudyprepared
for the annual review of Iceland by the Economic and
DevelopmentReviewCommitteeon 18thMarch 1991.
After revisions in the light of discussions during the
review, finalapprovaloftheSurveyforpublicationwasgiven
bytheCommitteeon22ndApril1991.
The previous Survey of Iceland was issued in
May1990.
Introduction
The most striking economic development in Iceland since the previous
Survey has been the dramatic reduction in the inflation rate: consumer prices
rose by less than 10 per cent in 1990 for the first time since the early 1970s,
despite surging world oil prices. While the tripartite agreement negotiated
early in the year was central to this disinflation, macroeconomic policies were
also supportive. Despite weak economic activity the budget deficit was nearly
halved from 1988 to 1990, and real interest rates have remained at high
levels. Whether the new phase oflow inflation will be long-lasting will become
clearer as Iceland recovers from over two years of recession. The economic
reform process has continued. Restrictions on international capital transac¬
tions have begun to be lifted, a process that will continue through 1992,
increasing access to international capital markets. Two important fisheries
reforms were introduced, a quota reform which will help control the fish catch
better and encourage the shrinkage of the fishing fleet, and a programme to
help damp the impact of fluctuations in world fish prices on aggregate
demand.
Iceland's ongoing reform process has been building on one of the
economy's underlying strengths - its well-functioning labour market. Iceland
has been able to achieve relatively high and stable employment despite being
subject to large shifts in economic policy and exogenous factors. Workers
move readily between both regions and sectors, and Iceland appears to have
avoided the compression of wage differentials that has caused problems in
other Nordic countries. Indeed, Iceland's unique labour market structure
played an important role in last year's marked drop in inflation, and will
probably make Iceland's adjustment in the process of structural reform less
disruptive.