| COPENHAGEN, March 6
COPENHAGEN, March 6 Iceland's central bank will
make a "significant" move towards lifting capital controls soon,
although a final settlement on how foreign creditors of
collapsed banks get repaid is yet to be found, its governor told
Reuters on Friday.
Iceland imposed capital controls in 2008 after a financial
meltdown following the collapse of three major banks that
brought the north Atlantic island to the brink of bankruptcy.
A rapid privatisation of Icelandic banks led to a massive
inflow of foreign capital and expansion of their lending --
assets upon the failure of the banks amounted to more than ten
times the gross domestic product of the country.
Now, after billions of euros' worth in foreign capital has
languished in Iceland for six years, both the government and the
central bank have made moves to lift controls.
Central Bank Governor Mar Gudmundsson noted that through
small and regular currency auctions the central bank had managed
to reduce the currency overhang -- foreigners' money stuck in
Iceland -- to 15 percent of GDP now from 40 percent in 2008.
"But 15 percent is still a significant number and it would
be very imprudent if we were just to assume that these 15
percent were stable," he said from Reykjavik by telephone.
The solution was two-fold -- to reduce that overhang further
and to induce foreign money to stay in Iceland with attractive
"We will shortly be offering investors alternatives ... and
these alternatives are such that they will greatly reduce the
likelihood of instability when controls are lifted," Gudmundsson
said, adding an announcement will be made in a "few weeks or
very few months."
Many investors had expected progress last year, however. The
delay appears to be tied to another problem from the crisis that
needs to be unravelled -- the settlement of debts to foreign
creditors of the collapsed banks -- which has become much more
While Finance Minister Bjarni Benediktsson appears willing
to solve the issue quickly and hired sovereign debt lawyer Lee
Buchheit to coordinate talks with creditors, Prime Minister
Sigmundur Gunnlaugsson has emphasised the harm investors had
done to Icelanders, signalling that they should pay.
All parties agree controls cannot be lifted before agreement
is reached with banks' creditors. But a recent suggestion of a
large exit tax on foreign money leaving Iceland, and the finance
minister's insistence that there were no such plans, highlights
the political hurdles such an agreement must still clear.
"These conflicting views seem to hinder the government in
proceeding on lifting the controls," said Sigrun Davidsdottir, a
London-based Icelandic journalist who has an extensive blog on
the crisis and its aftermath.
(Editing by Mark Potter)