Sigrún Davíðsdóttir's Icelog

Monday, some of the foreign advisers to the Icelandic government on capital controls met with the Parliament’s Economy and trade committee, apparently to present an outline of a plan towards lifting the capital controls. Tomorrow there is a meeting with the Winding-up Boards of the three failed banks.

The plan presented to the committee is so far confidential but in an interview with Stöð 2 Árni Páll Árnason leader of the social democrats said that without breaching the confidentiality he could say that the plan presented was a long way from the ISK300bn windfall for the Icelandic state that prime minister Sigmundur Davíð Gunnlaugsson promised during the election campaign last year. A promise that was always a hollow one, according to Árnason. “It also seems clear that the people’s pension funds will be last in the queue when the capital controls are lifted and the interest of the creditors have priority. It’s now reasonable to ask: what’s the cost of this delay?”

Árnason’s reaction, in addition to rumors from various sources indicate that the plan is still to a certain degree unformed. It is not yet clear if an exit tax on all capital flows from Iceland is being presented as part of it. This tax, in addition to other taxes already imposed on the estates, is likely to be challenged by creditors; it would then lead to the legal wrangling Bjarni Benediktsson minister of finance has said he would want to avoid.

Glenn Kim, who has lead the government’s working group, is in Iceland for the meetings, as is Cleary’s Lee Buchheit. On the other side there are foreign advisers for the Winding-up Board, i.a. from Blackstone. Considering this small world of hedge funds and their legal advisers it seems likely that the foreign advisers have some understanding of the creditors’ point of view and the fact that the creditors will feel that a plan on lifting the controls is long overdue.

There is still no sign of the government’s two leaders being in agreement as to how to proceed. However, with the Landsbanki bonds agreement now having been confirmed a decisive step forward has been taken. The government will now feel the pressure to continue along the same route. Tomorrow might certainly bring some surprises. Yet, remarkable few seem to count on the plan being the sort of solution the country is waiting for. More cost to Iceland from the capital controls might still accrue.

*Update: in addition to the issues above creditors might be offered to convert their ISK cash into long-term bonds, a classic way to resolve the problems at stake.

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