Oct. 5 (Bloomberg) -- Iceland’s police sealed off the country’s parliament with a five-foot steel fence to protect lawmakers as protestors gathered in their thousands, beating makeshift drums and hurling red paint at the legislature.
As many as 8,000 people protested outside the Reykjavik-based Althingi last night, according to a police estimate, as Prime Minister Johanna Sigurdardottir presented her key policy objectives to lawmakers. Protestors lit a bonfire and threw firecrackers at police while others threw eggs, tomatoes and paint at the parliament as they tried to break through the steel fence protecting the building.
Sigurdardottir, who convened a Cabinet meeting today to address the protests, is working on measures to help households restructure debt, she told reporters today. Finance Minister Steingrimur J. Sigfusson said banks need to do more to restructure homeowners’ debt burdens, at the same press conference.
The protests were designed to disrupt the Prime Minister’s first speech to lawmakers since parliament convened for the autumn session this month. Her government, in office since January 2009, is still struggling to resurrect the economy after its banking meltdown a year earlier plunged the island into a crisis that sent the krona down as much as 80 percent against the euro offshore. The island has since relied on a $4.6 billion International Monetary Fund-led loan to stay afloat.
“The government has failed the average person in Iceland,” said Baldur Jonsson, a protestor who said the crisis cost him his job. “It protects the interests of financial institutions while it couldn’t care less about normal people who have no job, no income and have lost the ability to feed their family.”
The $13 billion economy contracted an annual 8.4 percent in the second quarter, after shrinking 6.8 percent in 2009. The average Icelander experienced a 20.3 percent decline in his real, disposable income last year, while unemployment stood at 7.3 percent in August. Real house prices in the capital Reykjavik have slumped 34 percent since an October 2007 peak, the central bank said in August. The krona has been protected by capital controls since the end of 2008 to halt a selloff.
Of the 102,100 households in Iceland, the central bank estimated in April that 14 percent can’t meet their mortgage payments. Of single-parent households, which account for about 7,900 of homes, 20 percent can’t make ends meet. A total of 39 percent of homeowners are technically insolvent, according to the bank.
“Tonight will mark the beginning of a new democracy in Iceland in which people who have lost everything will claim what’s rightfully theirs,” Jonsson said. Protestors dispersed shortly after midnight local time while organizers had called on people to regroup at 2 p.m. in the Icelandic capital today.
Sigurdardottir’s Social Democrat, Left Green coalition took over from the administration of former Prime Minister Geir H. Haarde after it was ousted at the beginning of last year following mass public protests. Haarde was indicted by parliament on Sept. 28, becoming the first political leader since the global financial crisis started to face criminal proceedings because of alleged economic mismanagement.
Guard Dogs of Power
Some opposition lawmakers last night said the government hasn’t done enough to improve the plight of the average Icelander. “The guard dogs of power” are getting “fatter at the cost of the general public and at the cost of families that have lost everything,” said Baldvin Jonsson, a member of parliament for the smallest member of the opposition bloc, the Movement Party. “At the same time, the friends of those in power and the owners of capital are given write-offs amounting to thousands of millions.”
Sigurdardottir said she won’t be seeking a national unity government, at a press conference today, though her government will seek “greater cooperation” with parties outside her coalition, she said.
Sigurdardottir in prepared remarks told lawmakers the IMF’s third review of Iceland’s economic program, completed last week, will help lower credit default swap rates on the island’s debt and help ease access to international markets. That review unlocked a $167.5 million disbursement, which Iceland will use to bolster foreign reserves.
“With these good results we are laying the foundation for the removal of the capital controls and increased foreign investment in this country,” she told parliament.
The cost of insuring against a default on Iceland’s five-year debt has eased since the failure of the banks. The contracts have declined from a peak of 1,473 basis points in October 2008, after Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf collapsed weeks of each other, to 308 basis points yesterday, according to data available on Bloomberg.
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