In 2008 Iceland’s biggest banks defaulted on $85 billion and now creditors for Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Íslands – represented through winding-up committees – have requested exemptions to capital controls in order for them to complete settlements.
The winding-up committees have sought exemption from capital controls blocking about 461 billion ISK ($3.97 billion) in assets. In total, the capital controls are blocking about $7.2 billion, according to a central bank estimate.
The winding-up committee for Glitnir, the first of Iceland’s three biggest banks to fail in 2008, sent an offer to the central bank which, according to the committee, detailed how to safely scale back capital controls.
Steinunn Guðbjartsdóttir, head of Glitnir’s winding-up committee, said despite their efforts they were yet to receive a reply from the central bank. “We’ve gotten no feedback from the bank on whether, or when, they will respond.” she said.
Stefán Stefánsson, a spokesperson for the central bank on the other hand said that the bank has held several meetings including representatives of the winding-up committees and creditors, and is investigating the “kind of solutions [that] will harmonise with stability, as anticipated in law.”
The winding-up committees need the capital controls gone in order to settle claims but if the plan for reducing currency restrictions is not stable enough Iceland risks triggering a króna sell-off just as it tries to scale back capital controls.
The government has so far declined to participate in talks with creditors.
“It seems they’ve been waiting to see whether the government would somehow step into the process,” Prime Minister Sigmundur D. Gunnlaugsson told Bloomberg. “But this is not a project for the government. The only role of the government here is to assess whether they come up with a solution which allows for the lifting of the controls.”
The creditors and winding-up committees “are just private entities trying to reach an agreement regarding a private debt,” Gunnlaugsson added, “So the state – the government – has nothing to do with that. We’re not in talks with those creditors and we won’t be. Never were going to be.”
The Icelandic economy will expand 2.7% this year, according to the OECD, which is higher than the 2.3% average for the OECD-area as a whole.
Though the IMF has praised Iceland’s recovery trajectory, the fund warns that failure to end currency restrictions threatens to delay foreign investment needed to bring about a full recovery.