About the CBI
October 2005
Background Note: Iceland

Flag of Iceland is blue with a red cross outlined in white extending to the
edges of the flag; the vertical part of the cross is shifted to the hoist
side.

PROFILE

OFFICIAL NAME:
Republic of Iceland

Geography
Area: 103,000 sq. km. (39,600 sq. mi.); about the size of Virginia or
slightly larger than Ireland.
Cities: Capital--Reykjavik (pop. 113,730). Other towns--Kopavogur (25,784),
Hafnarfjordur (21,942), Akureyri (16,450).
Terrain: Rugged.
Climate: Maritime temperate.
Highest elevation: Hvannadalshnjukur at Vatnajokull Glacier, at 2,111 meters
(6,925 ft.).

People
Nationality: Noun--Icelander(s). Adjective--Icelandic.
Population (December 2003): 293,291.
Annual growth rate: 0.96%.
Ethnic group: Relatively homogenous mixture of descendants of Norwegians and
Celts.
Religion: Evangelical Lutheran, 86%.
Language: Icelandic.
Education: Compulsory up to age 16. Attendance--99%. Literacy--99.9%.
Health: Infant mortality rate--2.2/1,000. Life expectancy--men 78.2 years,
women 82.2 years.
Work force (2003, 166,600): Commerce--14.0%; manufacturing--11.2%; fishing/
fish processing--8.2%; construction--6.7%; transportation and
communications--6.8%; agriculture--4.4%; unemployment (2003): 4.1%.

Government
Type: Semi-presidential, parliamentary.
Independence: 1918 (became "sovereign state" under Danish Crown); 1944
(establishment of republic).
Constitution: 1874.
Branches: Executive--president (head of state), prime minister (head of
government), cabinet (12 ministers). Legislative--63-member unicameral
parliament (Althingi). Judicial--Supreme Court, district courts, special
courts.
Subdivisions: 26 administrative districts and 104 municipalities.
Major political parties: Independence (IP), Progressive (PP), Social
Democratic Alliance (SDA), Left-Green Party (LGP), Liberal Party (LP).
Suffrage: Universal 18 years and above.
National holiday: June 17, anniversary of the establishment of the republic.

Economy
GDP (2004): $12.54 billion.
GDP growth rate (2003): 3%; (2004): 5.8%.
Per capita GDP, purchasing power parity (2003): $29,700 (2003).
Inflation rate (2004): 3.95%.
Budget (2004): $4.15 billion.
Annual budget surplus (2004): 0.8% of GDP.
Net public debt (2004): 28.4% of GDP.
Foreign aid as part of 2004 budget: 0.19% of GDP.
Natural resources: Marine products, hydroelectric and geothermal power.
Agriculture: Products--potatoes, tomatoes, cucumbers, turnips, livestock.
Industry: Types--aluminum smelting, fishing and fish processing technology,
ferro-silicon alloy production, hydro and geothermal power, tourism,
information technology.
Trade: Exports of goods (2004)--$2.82 billion: marine products 62%,
industrial products 34%, agriculture 2%, and miscellaneous 2%. Partners--EU
72% (U.K. 18%, Germany 17%, Netherlands 11%, Spain 6%, Denmark 5%); U.S. 9%
($218 million); EFTA 6%; Japan 3%. Imports (2004)--$3.39 billion: industrial
supplies 27%; capital goods, parts, accessories 23%; consumer goods 20%;
transport equipment 14%; food and beverages 9%; fuels and lubricants 8%.
Partners--EU 62% (Germany 13%, Denmark 9%, U.K. 8%, Sweden 7%, Netherlands
7%); U.S. 8% ($208 million); EFTA 9%; Japan 4%.

GEOGRAPHY
Iceland is a volcanic island in the North Atlantic Ocean east of Greenland
and immediately south of the Arctic Circle. It lies about 4,200 kilometers
(2,600 mi.) from New York and 830 kilometers (520 mi.) from Scotland.

About 79% of Iceland's land area, which is of recent volcanic origin,
consists of glaciers, lakes, a mountainous lava desert (highest elevation
2,000 meters--6,590 ft.--above sea level), and other wasteland. About 28% of
the land is used for grazing, and 1% is cultivated. The inhabited areas are
on the coast, particularly in the southwest where about 60% of the population
lives.

Because of the Gulf Stream's moderating influence, the climate is
characterized by damp, cool summers and relatively mild but windy winters. In
Reykjavik, the average temperature is 11°C (52°F) in July and -1°C (30°F) in
January.

PEOPLE
Most Icelanders are descendants of Norwegian settlers and Celts from the
British Isles, and the population is remarkably homogeneous. According to
Icelandic Government statistics, 93% of the nation's inhabitants live in
urban areas (localities with populations greater than 200) and about 60% live
in the Reykjavik metropolitan area. Of the Nordic languages, the Icelandic
language is closest to the Old Norse language and has remained relatively
unchanged since the 12th century.

About 91% of the population belongs to the state church, the Evangelical
Lutheran Church, or other Lutheran Churches. However, Iceland has complete
religious liberty, and about 20 other religious congregations are present.

Most Icelandic surnames are based on patronymy, or the adoption of the
father's first given name. For example, Magnus and Anna, children of a man
named Petur, would hold the surname Petursson and Petursdottir, respectively.
Magnus' children, in turn, would inherit the surname Magnusson, while Anna's
children would claim their father's first given name as their surname. Women
normally maintain their original surnames after marriage. This system of
surnames is required by law, except for the descendants of those who had
acquired family names before 1913. Most Icelanders, while reserved by nature,
rarely call each other by their surnames, and even phone directories are
based on first names. Because of its small size and relative homogeneity,
Iceland holds all the characteristics of a very close-knit society.

Cultural Achievements
The Sagas, almost all written between 1180-1300 A.D., remain Iceland's
best-known literary accomplishment, and they have no surviving counterpart
anywhere in the Nordic world. Based on Norwegian and Icelandic histories and
genealogies, the Sagas present views of Nordic life and times up to 1100 A.D.
The Saga writers sought to record their heroes' great achievements and to
glorify the virtues of courage, pride, and honor, focusing in the later Sagas
on early Icelandic settlers. The best-known Icelandic writer of the 20th
century is the 1955 Nobel Prize winner Halldor Kiljan Laxness. The literacy
rate is 99.9%, and literature and poetry are a legendary passion with the
population. Per capita publication of books and magazines is the highest in
the world.

Unlike its literature, Iceland's fine arts did not flourish until the 19th
century because the population was small and scattered. Iceland's most famous
painters are Asgrimur Jonsson, Jon Stefansson, and Johannes Kjarval, all of
whom worked during the first half of the 20th century. The best-known modern
sculptor, Asmundur Sveinsson (1893-1982), drew his inspiration from Icelandic
folklore and the Sagas for many of his works.

Kristjan Johannsson is most likely Iceland's most famous opera singer, while
pop singer Bjork is probably its best-known artist internationally together
with the progressive rock band Sigur Ros.

HISTORY
Iceland was settled in the late 9th and early 10th centuries, principally by
people of Norse origin. In 930 A.D., the ruling chiefs established a
republican constitution and an assembly called the Althingi--the oldest
parliament in the world. Iceland remained independent until 1262, when it
entered into a treaty establishing a union with the Norwegian monarchy.
Iceland passed to Denmark in the late 14th century when Norway and Denmark
were united under the Danish crown.

In the early 19th century, national consciousness revived in Iceland. The
Althingi had been abolished in 1800 but was reestablished in 1843 as a
consultative assembly. In 1874, Denmark granted Iceland home rule, which
again was extended in 1904. The constitution, written in 1874, was revised in
1903, and a minister for Icelandic affairs, residing in Reykjavik, was made
responsible to the Althingi. The Act of Union, a 1918 agreement with Denmark,
recognized Iceland as a fully sovereign state united with Denmark under a
common king. Iceland established its own flag, but Denmark continued to
represent Icelandic foreign affairs and defense interests.

German occupation of Denmark in 1940 severed communications between Iceland
and Denmark. Consequently, Iceland moved immediately to assume control over
its own territorial waters and foreign affairs. In May 1940, British military
forces occupied Iceland. In July 1941, responsibility for Iceland's defense
passed to the United States. Following a plebiscite, Iceland formally became
an independent republic on June 17, 1944.

In October 1946, the Icelandic and U.S. Governments agreed to terminate U.S.
responsibility for the defense of Iceland, but the United States retained
certain rights at Keflavik. Iceland became a charter member of the North
Atlantic Treaty Organization (NATO) in 1949. After the outbreak of
hostilities in Korea in 1950, and pursuant to the request of NATO military
authorities, the United States and Iceland agreed that the United States
should again be responsible for Iceland's defense. A bilateral defense
agreement signed on May 5, 1951, is the authority for U.S. military presence
in Iceland. Iceland is the only NATO country with no standing military of its
own.

GOVERNMENT
The president, elected to a 4-year term, has limited powers. The prime
minister and cabinet exercise most executive functions. The parliament is
composed of 63 members, elected every 4 years unless it is dissolved sooner.
Suffrage for presidential and parliamentary elections is universal for those
18 and older, and members of the parliament are elected on the basis of
parties' proportional representation in six constituencies. The judiciary
consists of the Supreme Court, district courts, and various special courts.
The constitution protects the judiciary from infringement by the other two
branches.

Principal Government Officials
President--Olafur Ragnar Grimsson
Prime Minister--Halldór Ásgrímsson
Foreign Minister--Geir H. Haarde
Minister of Finance--Árni M. Mathiesen
Minister of Justice--Björn Bjarnason
Minister of Agriculture--Guðni Ágústsson
Minister of Communications--Sturla Böðvarsson
Minister of Fisheries--Einar Kristinn Guðfinnson
Minister for the Environment and Nordic Cooperation--Sigríður Anna
Þórðardóttir
Minister of Industry and Commerce--Valgerður Sverrisdóttir
Minister of Health and Social Security--Jón Kristjánsson
Minister of Social Affairs--Árni Magnússon
Minister of Education, Science and Culture--Þorgerður Katrín Gunnarsdóttir
Speaker of Althingi--Halldor Blondal
Ambassador to the U.S.--Helgi Agustsson
Ambassador to the UN--Hjalmar W. Hannesson
Ambassador to NATO--Gunnar Gunnarsson
Ambassador to the EU--Kjartan Johannsson

transliteration key:
Þ is "th"
ð is "d"

Iceland maintains an embassy in the United States at 1156 - 15th Street, NW,
Suite 1200, Washington, DC 20005 [tel. (202) 265-6653], and a consulate
general at 800 Third Ave, 36th floor, New York, NY 10022 [tel. (212)
593-2700]. Iceland also has 25 honorary consulates in major U.S. cities.

POLITICAL CONDITIONS
The current government is a coalition of the conservative Independence Party
(IP) and the moderate Progressive Party (PP). The two parties, which have
been in coalition since the 1995 election, hold a majority in parliament,
even though the IP lost some ground in the May 2003 election. Longtime IP
leader David Oddsson was Prime Minister 1991-2004, making him the
longest-serving prime minister in Europe (from 1991 to 1995, the IP was in
coalition with the Social Democratic Party). PP chairman and former Foreign
Minister Halldor Asgrimsson took over as Prime Minister on September 15,
2004, as part of a post-election deal with the Independence Party, and
Oddsson became Foreign Minister. Oddsson retired from his ministerial
position September 27, 2005, with former Finance Minister Geir Haarde
becoming Foreign Minister. In October 2005, Oddsson stepped down as IP
chairman, and Haarde was elected to the post at a party national conference.

Three left-wing parties--the Social Democratic Party, the People's Alliance
and the Women's List--formed an electoral coalition prior to the 1999
parliamentary election in the hope of mounting a credible challenge to the
long-dominant Independence Party. But the dream of creating a united left
coalition failed when disaffected leftists formed a new splinter party called
the Left Green Movement, led by former deputy People's Alliance leader
Steingrimur Sigfusson. With this defection, the left coalition won a
disappointing 27% of the vote (17 seats) in the 1999 election, four
percentage points below what the three parties had won running separately in
1995. Their 31% (20 seats) showing in 2003 recaptured this ground but did not
suffice to topple the government. The Left Greens, on the other hand,
surprised everyone by winning a respectable 9% of the vote (6 seats), and
clinging to that support in 2003. Another new faction, the Liberal Party, won
3% of the vote (2 seats) in 1999 based on its strong opposition to the
current fishing management system, and managed to double that support to just
over 7% (4 seats) in 2003.

Despite the poor electoral showing in 1999, the three left-wing parties
decided to merge formally in 2000, creating a new party, the Social
Democratic Alliance, led by Ingibjorg Solrun Gisladottir. The party has found
it difficult to reconcile the widely varying foreign policy views of its
members, which range from strong support for NATO membership and the U.S.
military presence to pacifism and a desire for neutrality.

When Iceland became a republic in 1944, the post of president was created to
fill the void left by the Danish king. Although the president is popularly
elected and has limited veto powers (he can force a public referendum on a
proposed law by refusing to sign it--a power that has only once been
exercised), the expectation is that the president should play the same
limited role as a monarch in a traditional parliamentary system.

The current President is Olafur Ragnar Grimsson, a former political science
professor who led the far-left People's Alliance in 1987-95 and served as
Finance Minister in 1988-91. Although Grimsson won office with only a 41%
plurality in 1996, he was not challenged for re-election in 2000. This
follows a well-established tradition of giving deference to sitting
presidents. He was re-elected again on June 26, 2004. Once in office, a
president can generally count on serving as many terms as he or she likes,
assuming good behavior. Reflecting the belief that the president is "above
politics," presidential candidates run for election as individuals--since
1952, political parties have played no role in nominating or endorsing
candidates. President Grimsson has occasionally drawn criticism for breaching
the bounds of presidential etiquette by being too outspoken on sensitive
political issues.

ECONOMY
Marine products account for the majority of Iceland's exports of goods. Other
important exports include aluminum, ferro-silicon alloys, equipment and
electronic machinery for fishing and fish processing and pharmaceuticals.
Information technology and life sciences and related services are important
growth areas. The vast majority of Iceland's exports go to the European Union
(EU) and the European Free Trade Association (EFTA) countries, followed by
the United States and Japan. The U.S. is by far the largest foreign investor
in Iceland, and the country's largest supplier of imported services (e.g.,
financial and franchise services, movies/TV programs/music, tourism).
Iceland's relatively liberal trading policy was strengthened by accession to
the European Economic Area in 1994 and by the Uruguay Round agreement, which
also brought significantly improved market access for Iceland's exports,
particularly seafood products. However, the agricultural sector remains
heavily subsidized and protected.

In recent decades, Iceland's economy has been prone to inflation due to
periods of rapid growth and its dependence on just a few key export sectors
(i.e., fish, and increasingly tourism), which can fluctuate significantly
from one year to the next. The 1970s oil shocks hit Iceland hard. Inflation
rose to 43% in 1974 and 59% in 1980, falling to 15% in 1987 but rising to 30%
in 1988. Since 1990, due to economic reforms and deregulation, inflation has
dramatically fallen, averaging around 4% in the 1990s. Due to several years
of strong economic growth, Iceland experienced the most positive economic
period in its history during that decade. However, as with many advanced
countries, Iceland's economy experienced a mild recession during 2002 due to
global conditions. That recession was short-lived, and healthy growth of 3%
was registered during 2003. In 2004, the economy boomed, growing 5.8%, and
inflation was close to the Central bank's upper limit (4%) at 3.95%, while
unemployment decreased to about 3.2%.

Iceland has few proven mineral resources. Abundant hydroelectric and
geothermal power sources allow over 90% of the population to enjoy
electricity and heating from these natural resources. The Burfell
hydroelectric project is the largest single station, with capacity of 270
megawatts (mw). The other major hydroelectric stations are at Hrauneyjarfoss
(210 mw), Sigalda (150 mw) and Blanda (150 mw). Iceland is exploring the
feasibility of exporting hydroelectric energy via submarine cable to mainland
Europe and also actively seeks to expand its power-intensive industries,
particularly aluminum smelting plants. Iceland-based Nordural Aluminum is a
wholly owned investment by Century Aluminum of Monterey, California. The
plant employs more than 200 people and will more than double its 90,000 tons
per year capacity before the end of the decade. Construction of a
hydroelectric power plant in connection with Alcoa's planned 322,000 ton per
year aluminum smelter has already begun. The smelter will begin production in
2007 at which point over $2 billion will have been invested in this, the
largest economic project in Icelandic history.

Iceland has no railroads. Organized road building began about 1900 and has
greatly expanded in the past decade. The current national road system
connecting most of the population centers is largely in the coastal areas and
consists of about 13,000 kilometers (8,125 mi.) of roads with about 4,330
kilometers (2,706 mi.) paved. Regular air and sea service connects Reykjavik
with the other main population centers. The national airline, Icelandair,
flies from Iceland to Europe and North America, and is one of the country's
largest employers. Iceland became a full member of the European Free Trade
Association (EFTA) in 1970 and entered into a free trade agreement with the
European Community in 1973. Under the European Economic Area (EEA) agreement,
which took effect January 1, 1994, there is basically free cross-border
movement of capital, labor, goods, and services between Iceland, Norway, and
the EU countries.

DEFENSE
When Iceland became a founding member of NATO in 1949, it did so on the
explicit understanding that Iceland, which has never had a military, would
not be expected to establish an indigenous force. Iceland's main contribution
to the common defense effort has been the rent-free provision of the "agreed
areas"--sites for military facilities. By far the largest and most important
of these is the NATO Naval Air Station at Keflavik. Although this base is
manned primarily by U.S. forces, units from other NATO countries also are
deployed temporarily to Keflavik, and they stage training exercises. In May
2001 the 50th anniversary of the bilateral agreement was celebrated.

In addition to providing the "agreed areas," the Government of Iceland
contributes financially to NATO's international overhead costs and recently
has taken a more active role in NATO deliberations, planning, and
peacekeeping. Iceland hosted the NATO Foreign Ministers' Meeting in Reykjavik
in June 1987 and again in May 2002.

FOREIGN RELATIONS
Iceland maintains diplomatic and commercial relations with practically all
nations, but its ties with other Nordic states, with the U.S., and with the
other NATO member states are particularly close. Icelanders remain especially
proud of the role Iceland played in hosting the historic 1986 summit in
Reykjavik between President Reagan and Soviet leader Gorbachev, which set the
stage for the end of the Cold War.

Iceland has greatly increased its international profile since the early 1990s
with the end of the Cold War. Since the mid-1990s, Iceland has opened eight
missions overseas, including an embassy in Beijing, giving Iceland a
diplomatic presence in all five permanent member countries of the UN Security
Council. Not coincidentally, it has announced its candidacy to serve on the
UN Security Council in 2009-10. In the past few years, Iceland has also
established missions to the Council of Europe in Strasbourg and to the
Organization for Security and Cooperation (OSCE) in Vienna. In 1998, it
bolstered its delegation to NATO, assigning a permanent representative to the
military committee for the first time ever.

Notwithstanding its status as an unarmed nation, Iceland has been eager to do
its part to contribute to the maintenance of international peace and
security. One of the niches it is trying to fill is in civilian peacekeeping
and crisis management. It took a significant step forward in this area in
2001 by launching its Icelandic Crisis Response Unit (ICRU). In setting up
the ICRU, the Ministry for Foreign Affairs established a roster of over 100
experts in various occupations (police officers, nurses, doctors, lawyers,
engineers, journalists, etc.) who will be specially trained and prepared to
deploy to trouble spots abroad on short notice.

Peacekeeping has been a permanent item in the Icelandic state budget since
1994, and Iceland has been an active member of the UN Peacekeeping Committee
since 1997. With the formal establishment of ICRU, the government decided to
increase the number of deployed peacekeepers to 50 by 2006. The key emerging
niche capability of the ICRU is airport administration following the
successful management of the airport in Pristina, Kosovo, in 2003 and of the
airport in Kabul, Afghanistan, in 2004-05.

Icelanders have a strong emotional bond with the Baltic states, and Iceland
prides itself on being the first country to have recognized these countries'
claim for independence in 1991.

Membership in International Organizations
Iceland is a member of the following organizations: Arctic Council, Barents
Euro-Arctic Council; Council of Baltic Sea States; Council of Europe;
European Economic Area; European Free Trade Organization; EFTA Court; EFTA
Surveillance Authority; North Atlantic Treaty Organization; Organization for
Security and Cooperation in Europe; Organization for Economic Cooperation and
Development; International Criminal Police Organization; International
Council for the Exploration of the Sea; International Hydrographic
Organization; International Maritime Satellite Organization; International
Union for the Publication of Custom Tariffs; Nordic Council; North-East
Atlantic Fisheries Commission; North Atlantic Salmon Conservation
Organization; the International Whaling Commission; and the North Atlantic
Marine Mammal Commission.

It also is a member of the United Nations and most of its related
organizations, specialized agencies, and commissions, including the
International Monetary Fund, World Trade Organization, World Tourism
Organization, Food and Agricultural Organization, International Atomic Energy
Agency, International Civil Aviation Organization, International Fund for
Agricultural Development; Industrial Development Organization; International
Labor Organization, International Maritime Organization, International
Telecommunications Union, UN Educational, Scientific, and Cultural
Organization, Universal Postal Union, World Health Organization, and World
Meteorological Organization; World Intellectual Property Organization;
International Bank for Reconstruction and Development; International
Development Association; International Finance Corporation Multilateral
Investment Guarantee Agency and International Center for Settlement of
Investment Disputes; UN Conference on Disarmament; Economic Commission for
Europe; UN High Commissioner for Refugees; Office for the High Commissioner
for Human Rights; Commission of Human Rights; UN Conference on Trade and
Development.

U.S.-ICELANDIC RELATIONS
U.S. policy aims to maintain close, cooperative relations with Iceland, both
as a NATO ally and as a friend interested in the shared objectives of
enhancing world peace; respect for human rights; economic development; arms
control; and law enforcement cooperation, including the fight against
terrorism, narcotics, and human trafficking. Moreover, the United States
endeavors to strengthen bilateral economic and trade relations.

Principal U.S. Officials
Ambassador--vacant
Charge d'Affaires, a.i.--Philip S. Kosnett
Political Officer--Lisa S. Kierans
Economic/Commercial Officer--David E. Jaberg
Management Officer--Robert W. Dreesen
Communications Officer--Ryan M. Boera
Public Affairs Officer--vacant
Consular Officer--Ronald E. Hawkins, Jr.
Regional Security Officer--Peter A. DiNoia

The U.S. Embassy in Iceland is located at Laufasvegur 21, Reykjavik [tel.
(354) 562-9100]. The Embassy's web site is www.usa.is