Creditors Closer To Pay Out - The Reykjavik Grapevine

Creditors Closer To Pay Out

Published September 23, 2014

Nanna Árnadóttir
Photo by
Natsha Nandabhiwat

The outlook for hedge funds caught in Iceland’s $85 billion banking failure may be looking up, reports Bloomberg.

The administrators overseeing claims against one of the three banks that defaulted in 2008, Glitnir Bank hf, say recent talks with a government committee indicate that it will now be easier to complete creditor settlements.

“My impression is that the government had until now not been ready,” Steinunn Guðbjartsdóttir, head of Glitnir’s winding-up committee, told Bloomberg. “Now that they’ve got their processes in place, it will be possible to complete this sooner rather than later.”

The main obstacle to repaying creditors has been Iceland’s concern that any outflow of money would drag down the ISK and derail efforts to remove capital controls.

Glitnir has proposed a workaround for this issue by presenting a payment model that allows offshore creditors to be reimbursed without disrupting the exchange rate or affecting capital controls.

As reported, for the last six years Iceland has relied on the currency restrictions, originally presented as a temporary measure, to shield its exchange rate and current account balance from a capital exodus.

The removal of capital controls has been a slow process, and it remains unclear when exactly it will take place.

“[The] decisions are difficult,” Steinunn told Bloomberg, though she has seen forward momentum since the government created an executive board for the removal of capital controls. “The government has said that they plan to introduce conditions allowing the completion of creditor settlements. And hopefully these conditions will allow us to complete our work. So now we’re waiting for the conditions or the framework the government plans to unveil, which will allow us to complete the winding-up process.”

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.

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