Economic statistics - 01.02.1995, Blaðsíða 4

Real exchange rate ofthe króna
Quarterly dala 1980 -1996
would have to raise other income or cut expenditure
due to this change as it involves a reduction in
Treasury revenue.
Lump sum payments of the social security system
increase in tandem with the wage contracts.
The fiscal concessions are estimated to cost 1.8
b.kr. in 1995 in lost revenue or increased expendi-
ture, but 3 b.kr. on an annual basis when they have
come into full force.
It is roughly estimated at present that when
account is taken of the revenue effects of a higher
wage level and increased national expenditure in
the wake of the wage settlement, that the Treasury
deficit could be around 1 b.kr. higher in 1995 than
in the budget law, or around 8V2 b.kr. or 1.8% of
GDP.
CHANGES IN THE INDEXATION REGIME
New legislation on the indexation of financial assets was adopted in February 1995. In
conjunction with the wage settlement reached in February, the government deciared that
it would make necessary changes to the rules on indexation of financial assets so that it
would be based on the consumer price index. The change was supposed to be made in
such a way that it would apply in equal measure to new and already issued indexed finan-
cial obligations. It further declared that it would gradually decrease the scope of financial
indexation.
Before this latest legislation, indexation of krónur
obligations in lceland was allowed against SDR,
ECU and a special credit terms index composed in
equal proportions of the consumer price index, the
building cost index and a general wage index. The
bulk of indexed obligations were indexed against
the credit terms index, which came into existence in
June 1979. Initially, it was composed of the con-
sumer price index by two-thirds and of the building
cost index by one-third. The current composition
was adopted in January 1989. It was a further
requirement that indexed loans and obligations
should be of a maturity of at least two years and
indexed deposits should have a maturity of at least
one year.
The motivation of the partners on the labour
market for demanding a change of indexation from
the credit terms index to the consumer price index
was to minimise the effect of wage increases on the
stock of indexed debt and therefore on the debt
servicing burden of households and firms, as real
wages are expected to increase during the coming
period. The government's rationale was that index-
ation based on the consumer price index, with a
sound legal basis, would be more permanent and
credible than the current form, also in the light of
the fact that it is the most common form in other
countries where indexation is offered in the finan-
cial market.
The legislation stipulates that indexation of
deposits and lending is allowed against either the
consumer price index or indices of foreign curren-
cies calculated and published by the Central Bank.
The consumer price index which is calculated and
published for a given month will be used for finan-
cial indexation during the next month. The Central
Bank can with the consent of the Minister of
Commerce allow other officially recorded indices to
be used for the purpose of indexation. Already
issued financial obligations that are indexed with
the credit terms index will from April onwards be
indexed with the consumer price index, and a
linked index of the two will be published for that pur-
pose.
CURRENT ACCOUNT SURPLUS: 2.3% OF GDP IN 1994
The current account was in surplus by 10.1 billion krónur in 1994, or an estimated 2.3%
of GDP. This is a radical turnaround, representing the first current account surplus for two
consecutive years since the late 1960s. Since then until 1993, a current account surplus
has only been shown twice, in 1978 and 1986.
According to provisional figures, there was a account in 1994, but the services account was in
20.5 b.kr. surplus on the merchandise trade deficit by 10.4 b.kr. Significant repayments of for-