Sigrún Davíðsdóttir's Icelog

After rumours on imminent changes or reshuffle of advisers working on capital controls it now seems that such movements are indeed about to happen.

According to DV (now owned by Progressive Party supporters who hired journalist Hörður Ægisson, previously at Morgunblaðið, a constant source of scoops from the CBI and the ministry of finance; media-ownership in Iceland is an increasingly intriguing saga, big changes there these days and weeks) Freyr Hermannsson, Eiríkur Svavarsson and the chairman of the (previous/present?) advisory committee Glenn Kim will not be continuing.

The new name is Sigurður Hannesson* from MP Bank, known in Iceland as a close friend of prime minister Sigmundur Davíð Gunnlaugsson and believed to have been a source of ideas for the PM over the years. Hannesson was a chairman of a working group advising on indexed loans, a topic close to the PM’s heart. Benedikt Gíslason, an adviser to minister of finance Bjarni Benediktsson and a member of the Glenn Kim committee, is also said to be part of the committee in spe. An alleged third member of the committee is not been named in DV.

If this move turns out to be true and the task of this group, manned only by Icelanders, will be to identify solutions to ease or lift the capital controls this spells two things: a) the solutions will be “home-brewed,” i.e. not formed in co-operation with anyone familiar with the international debt-scene b) the PM is strengthening his grip on the topic of capital control although it is formally under Benediktsson’s ministry. If this becomes too obvious it will make the already unhappy Independence party parliamentary group, feeling that their bigger party is continuously working on Progressive party policies and not their own, yet more unhappy.

The Glenn Kim group was the second group set up to work on the capital controls and its task seemed to be to find solutions to finally find ways to  lifting the controls. No plans have been made public in spite of Benediktsson repeatedly saying that such plans would be finalised by the end of the year. A refrain from the leaders, especially the PM, has been that creditors have to meet the expectations of the government and the interests of Iceland. It now seems that neither the first group nor the second have come up with the solution the two leaders expected them to. So the leaders might as well try their luck yet again.

Everything done so far has been marked by a lack of unity by the two coalition leaders. Another group seems a way of postponing action. With all the work done by the CBI, the first group and then the Glenn group it surely seems unlikely that much is left to discover. What is more likely is that the PM and Benediktsson still are, as is widely rumoured, at loggerheads on how to proceed. A new group would then be an exercise in can-kicking. As one source said: “As long as the two leaders have not negotiated a solution amongst themselves no solution is in sight.”

What could possibly focus the minds of the two leaders? One underlying issue is the future ownership of Íslandsbanki and Arion, owned respectively by Glitnir and Kaupthing, i.e. creditors. If the two leaders, both from wealthy families with ties in the business sector, want to influence who gets to own the banks their time to do it is limited; the next election is scheduled in spring 2017. Iceland, right now with a contracting** economy, is smarting from capital controls and the leaders are playing the fiddle – or at least fiddling with their advisers.

*Update: MP Bank has now confirmed that Hannesson will take a temporary leave from the bank to work as an adviser on capital controls to the government. Interestingly, neither the Office of the Prime Minister nor the ministry of finance have mentioned this new adviser. 

**Update: one Icelandic reader disagrees that the Icelandic economy is contracting pointing out that the stats for the first nine months shows less growth than previously but this is expected to change with the whole-year stats. This is indeed the general expectations among Icelandic economists; I’ve even heard that the reason for the unexpected dip are staff changes at the Icelandic Statistical Bureau. However, I spoke to one person with a keen insight into the Icelandic labour market whose impressions were in accordance with the stats. – Remains to be seen, more on this later.

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