Country Profile: Iceland

ISLAND

Demographics: 

Iceland is an island state in the North Atlantic.

  • Population: 318.000
  • Area: 103.001 km2
  • Capital: Reykjavik
  • Growth rate 2011: 3.1%
  • Unemployment rate: 7.0%
  • GDP/capita 2011: $39.025

History of Crisis:

Iceland experienced a massive economic boom in the years leading up to the crisis.  The financial system expanded considerably. But the banks had run amok, but they had done so within a governmental framework: the Central Bank of Iceland directed the credit expansion and assumed the role of an explicit lender of last resort. The CBI has later been criticized for being politically controlled. Two of its three governors were direct political appointees.

In fall of 2008, the crash finally came. The exchange rate of the Icelandic króna collapsed, the three big Icelandic banks, Landsbanki, Kaupthing and Glitnir had to be nationalized, unemployment soared and the rate of price inflation reached 18 percent by the end of the year.

One of the measures taken to get the economy back on track was a help package Iceland and IMF (The International Monetary Fund) agreed on the 20th of november 2008. The loan from IMF had three objectives for Iceland.

-Stabilize the exchange rate

-Put the public finances on a sustainable path

-Restructure the financial system

The money from IMF was split up in six portions. Each of these six times IMF would asses Iceland to see if they had kept their part of the deal. The IMF demands included cutting down on the public expenses and reducing the inflation. Although the Icelandic government were able to hold their own line towards the IMF, and put the emphasis on raising taxes. “The IMF showed great understanding and felxibility for our situation” said Steingrimur Sigfusson, finance minister from the Green-Leftist party.

Future outlook

The program with IMF finished half a year ago, and it has been very succesfull and the numbers now indicate that Iceland’s economy is going in the right direction. The low value of their currency, the kronar, has meant that the export has gone up, beacuse their products are very competetive due to the low value of the currency. The low currency has also meant that the import has gone down.

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