Icelandic business is urging the government to write down krona assets held by the nation’s failed banks to help scale back capital controls and restore financial stability.
“The economy simply isn’t capable of allowing these funds to be converted into foreign currencies using the current exchange rate,” Frosti Olafsson, the managing director of the island’s Chamber of Commerce in Reykjavik, said in an interview. “As time passes, the capital controls are becoming increasingly burdensome for the economy and Icelandic corporations.”
The north Atlantic island’s central bank, which imposed currency restriction following the failure of Glitnir Bank hf, Kaupthing Bank hf and Landsbanki Islands hf in October 2008, is now seeking ways to remove the controls. The restrictions are blocking about $8 billion from leaving the economy, according to an Arion banki hf estimate.
The caretakers of the three failed banks hold a combined 461 billion kronur ($3.8 billion) in krona-denominated assets, according to their latest financial statements. Both Glitnir and Kaupthing have requested that Sedlabanki grant exemptions to the capital controls to allow them to complete creditor settlements. The central bank has yet to respond.
Completing settlements and removing the capital controls are key to improving Iceland’s economy and fostering production-driven long-term growth, according to Olafsson.
If the government acts “immediately” the restrictions can be abolished within the next four years, he said.
“The key to removing the capital controls is building credibility in both domestic and international markets that the Icelandic economy is externally sustainable,” he said. “Completing these settlements and reducing uncertainty with regards to the external position is a vital next step for removal of the capital controls.”