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Iceland [1990/1991] PDF

95 Pages·1991·4.633 MB·English
by  OECD
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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 LU CD < û. < CQ 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.

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