Monday 26 September 2016

Iceland's incredible tourist boom doesn't quite lift all boats

Gwladys Fouche and Ragnhildur Sigurdardottir

Published 14/06/2016 | 02:30

On most nights, Iceland's top tourist attraction, the Blue Lagoon geothermal spa, is packed with visitors wearing mud masks and drinking local beer.

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They're just some of the foreign visitors contributing to a tourism surge that is helping to fix an economy wrecked by the 2008 financial crisis.

Many Icelanders are not having as much fun.

While unemployment has fallen to pre-crisis levels, gross national income per capita is around a quarter less than in 2007, about one-tenth of the population has fallen into serious loan default and thousands of homes have been repossessed.

They have little faith in the authorities fully restoring living standards and the resentment is fuelling the rise of the anti-establishment Pirate Party, which is leading in polls ahead of elections in October.

The mistrust runs deep. During the crash Iceland became the first western European country since 1976 to get an International Monetary Fund (IMF) bailout.

It needed the $2.1bn (€1.86bn) IMF loan, and another $2.5bn from its Scandinavian neighbours, to protect domestic deposits and keep its krona currency, which has collapsed 70pc against the euro since 2007, from crashing further.

The government sharply reduced spending and raised interest rates to as much as 18pc to control inflation that climbed to a record-high 18.6pc in January 2009. The currency collapse, though, helped restore competitiveness and, along with a big marketing push to promote Iceland as a destination, boosted tourism.

Last year 1.7 million visitors revelled in Iceland's natural beauty, more than double the number who arrived a decade ago and more than five times the total number of Icelanders.

"We have fully recovered in economic terms. The Icelandic economy is doing very well at the moment," central bank chief Mar Gudmundsson said, citing the "phenomenal" growth in tourism as one of the main reasons, alongside the fisheries industry, for the turnaround.

At the Blue Lagoon, most visitors spent close to 30 minutes queuing to get in despite pre-booking tickets.

"It is a tourism tsunami," said Matthias Kjartansson, managing director of travel operator Iceland ProTravel, whose turnover has grown five-fold since 2012. "All over Iceland, there are no hotel rooms. It is crazy."

For most Icelandic households fast cars and buzzing tourist restaurants such as Dill, which offers Arctic char smoked with sheep manure as part of a seven-course menu for 13,900 crowns ($111), are beyond reach.

Gross national income per capita was $46,350 in 2013, compared to $62,290 in 2007.

"It is not getting better for me," said Agusta Drofn Gudmundsdottir, a part-time receptionist who receives disability benefits after a motorbike accident when she was 16, over coffee in her kitchen in suburban Reykjavik. But growth is expected to hit 4.3pc this year, unemployment is at a pre-crisis low of 3.2pc and capital controls, imposed after the crash, will begin to be lifted this autumn.

"We have changed it from an unbearable situation a few years ago, from about 130 to 140pc (of GDP) to 14pc and it can continue going down," Prime Minister Sigurdur Ingi Johannsson said.

At Dill restaurant, Eiriksson wonders whether Iceland is heading for another bust. "Hopefully we have learnt something." (Reuters)

Irish Independent

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