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Will Capital Controls be Lifted?

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Will Capital Controls be Lifted?

Bjarni Benediktsson and Sigmundur Davíð Gunnlaugsson

Finance Minister Bjarni Bendediktsson and Prime Minister Sigmundur Davíð Gunnlaugsson. Photo: Páll Stefánsson.

The economic measures introduced by the government Wednesday are the largest ever in Icelandic history, according to Finance Minister Bjarni Benediktsson, Vísir reports.

Central Bank Director Már Guðmundsson says these measures will have no negative effect on currency value or foreign currency reserves. He believes capital controls can be rapidly lifted next year, RÚV reports.

What the economic measures entail is that the failed banks agree to the requirements of the government by paying a stability contribution to avoid a substantial stability tax. Then they must go through the process of composition. The total size of the measures is ISK 856 billion (USD 6.6 billion, EUR 6 billion), ISK 500 billion (USD 3.9, EUR 3.5 billion) of which goes directly or indirectly to the state.

The Central Bank of Iceland has agreed to give the banks an exemption from capital controls, a decision Bjarni says he supports. Once he has introduced the matter formally, the case will go to the winding-up committees of the banks, who then would have to complete composition and go through court.

“I won’t deny it’s worrisome at this moment that courts will be rushed considerably to review and process these winding-up proceedings, which are the largest in Icelandic history, so large that when looking at them one by one, they would make the list of the ten biggest bankruptcies of American businesses. Therefore, we expect additional extensions to be granted, if only to allow the courts appropriate and fair time to do their job once the winding-up committees have come to a conclusion.”

Altogether, RÚV reports, foreign debt is expected to decrease by ISK 360 billion (USD 2.8 billion, EUR 2.5 billion), a figure which reflects the stability contribution of the three failed banks.

According to Bjarni, “What stands out is that we have a solution to the problem caused by the winding-up proceedings, but that has been the main hindrance in the process of lifting capital controls.”

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