By Kristin Arna Bragadottir
REYKJAVIK (Reuters) - The likely new prime minister of Iceland said on Thursday that talks on forming a centre-left government for her crisis-hit nation were set to wrap up on Friday and that it would take office the following day.
Johanna Sigurdardottir, 66, whose Social Democratic Party is talking with the Left-Greens on a new administration after protests helped force out her predecessor, Geir Haarde of the Independence Party, said the negotiations were going well.
She reiterated that a key task would be to dismiss the leadership of the central bank, widely criticised for failing to prevent the crisis which forced Iceland last year to take a $10 billion rescue from the IMF and several European nations.
"We will meet with our parties tomorrow (Friday) afternoon and if all goes well we will present the list of (cabinet) posts and a declaration of policies after those meetings," she told reporters after the talks.
"... We fully expect that a new government can take office on Saturday," added Sigurdardottir, set to become the world's first openly gay leader. She is social affairs minister in the outgoing government.
Social Democrat leader Ingibjorg Gisladottir has proposed Sigurdardottir become prime minister while Gisladottir takes sick leave to recover from a benign brain tumour.
The new government will lead the country into an early parliamentary election, due between April and June.
The global financial crisis hit Iceland in October, ending a decade of rising prosperity in a matter of days by triggering a collapse in the currency and financial system.
"We are looking at the best ways on how to dismiss the management of the central Bank," she added, saying this would be done so that there would be "peace and trust" in the bank again.
Central bank governor David Oddsson is himself a former long-serving prime minister of the Independence Party.
CRISIS TO WORSEN
The Social Democrats and the Left-Greens, who will run a minority coalition, have also held talks with the Progressive Party to ensure its support in the 63-seat parliament.
Sigurdardottir spoke after new data underlined the urgency of tackling the nation's crisis.
Earlier, the central bank said the jobless rate was likely to rise to 11 percent in the first quarter of 2010 and stay high for a longer time than it previously thought.
Prior to October, unemployment had been around one percent in the small North Atlantic nation of 320,000 people.
Output is seen falling more than 10 percent this year, the bank said, as it chose to leave interest rates unchanged at a record 18 percent.
The crisis sparked protests as Icelanders blamed Haarde and other top officials for failing to stave off economic mayhem.
Police used pepper spray and arrested six protesters on Wednesday evening at a demonstration outside a NATO meeting in the capital Reykjavik.
The Social Democrats were the junior party in the outgoing coalition, while the opposition Left-Greens now lead opinion polls. The inter-party talks need to find common ground on many issues, including whether to apply to join the European Union.
The Left-Greens are more cautious about EU membership than the Social Democrats, although the parties broadly agree there should be a referendum on whether to open EU accession talks.
Left-Green leader Steingrimur Sigfusson has also called for a renegotiation of the IMF loan.
(Writing by Patrick Lannin and Kim McLaughlin; Editing by Richard Meares)