January 26, 2009 / 3:55 PM / 11 years ago

FACTBOX: Iceland's government falls in financial crisis

(Reuters) - Iceland’s Prime Minister Geir Haarde said on Monday his coalition government had fallen apart under the pressures of the financial crisis and he would hand in his resignation to the president.

Foreign Minister Ingibjorg Gisladottir, the Social Democrat leader who had been considered a potential replacement for Haarde, announced she would not seek to be prime minister.

Pressure was high with demonstrations against the government and the central bank becoming regular fixtures in the capital Reykjavik since the currency plunged and the financial system collapsed.

Here are some facts about Iceland and its economy:


— Iceland’s Finance Ministry said last week that it saw real GDP falling 9.6 percent in 2009 and remaining largely unchanged in 2010 compared with its October forecast of down 1.6 percent in 2009 and growth of 1.1 percent next year.

— It also saw inflation for 2009 at 13.1 percent, compared to its October forecast of 5.7 percent. For 2010, it saw inflation coming down to 2.7 percent to put it in line with the central bank’s target.

— The government said it expected the current account deficit, currently an estimated 22 percent of GDP, to reverse to a 6.1 percent surplus this year and to 5.6 percent in 2010. Unemployment was seen rising to an average of 7.8 percent in 2009 and rising even further in 2010, to 8.6 percent.

— Prime Minister Haarde had warned of “national bankruptcy” and said at the end of last year that the financial crisis which ravaged the banking system and the crown currency underscored the pitfalls of managing a currency in a small, open economy.

— The International Monetary Fund (IMF) approved a $2.1 billion loan for Iceland on November 19 as part of a package of assistance which totaled about $10 billion.

— Iceland’s major banks and its currency had collapsed under the weight of billions of dollars of debt accumulated in an aggressive overseas expansion into financial services.


— Iceland’s financial stature had swelled in recent years as its banks expanded rapidly overseas. Investors took large positions in its high-yielding currency and foreign firms and individuals poured money into local projects.

— Before the banking sector was deregulated in the late 1990s, the economy was based mainly on fishing, and marine products accounted for the majority of exports.

— Important exports now include aluminum, ferro-silicon alloys, equipment and electronic machinery for fishing and fish processing, and pharmaceuticals.

— Before the crisis, Icelandic businesses had targeted investments in the retail and financial sectors in Britain and the Nordic region and in the telecoms and pharmaceutical sectors in Eastern Europe.


CAPITAL - Reykjavik

POPULATION - 320,000

ETHNICITY - Some 96 percent of Icelanders are descendants of Norwegian, Scottish and Irish immigrants.

RELIGION - 92 percent of Icelanders are Lutheran. There are small minorities of other Protestants and Roman Catholics.

LANGUAGE - Modern Icelandic is closely related to Old Norse, the language of the original Viking settlers.

GOVERNMENT - Legislative power is vested jointly in the president and the 63-seat Althingi, a single-chamber parliament elected for a four-year period. The Althingi traces its origins to the assembly established by Viking settlers in A.D. 930, making it the world’s oldest parliament.

SOME HISTORY: The Vikings’ independent commonwealth collapsed in the 13th century when the island came under the rule of Norway and, later, Denmark. Granted home rule in 1918, the Icelanders finally broke from the Danes after the Nazi occupation of Denmark in April 1940. Following a referendum, the Republic of Iceland was proclaimed in June 1944.

AREA - 103,100 sq km (39,810 square miles). Four-fifths of the island is uninhabited. Glaciers cover 11 percent of the land and trees are a prized rarity.

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