For the time being the topic of capital controls in Iceland seems shrouded in silence. Yes, recently yet another MP banker was added to the controls steering committee, the prime minister mentioned the controls in a speech without maligning creditors or talking about the billions the state could derive from the bank estates. In other words, so far so little, which means that little is changing from what it has been.
“Lifting the capital controls is the single most important issue for Iceland,” prime minister and leader of the Progressive party Sigmundur Davíð Gunnlaugsson said in a speech recently. Gunnlaugsson has mostly just made stray comments on the controls, lately far from his earlier so belligerent tone and no mention of the funds that could be derived from the estates.
The force minister of finance and leader of the Independence party Bjarni Benediktsson seemed to be putting into control-lifting late last year seems to have seeped out of him as he could not deliver on his promise: to present a plan by the end of 2014.
There is now little apparent energy behind this issue. Compared to same time last year the progress is that there are now foreign advisers working on capital controls and a new steering committee, the third such advisory group. In addition to hiring foreign advisers Benediktsson’s major achievement last year was pulling through the Landsbanki bond agreement. But instead of being the agreement being first it has remained the only step so far.
“I fully expect something to happen regarding the capital controls after the next election, in 2017,” was the wry comment from one Icelandic observer some days ago expressing the sentiment that this single most important issue seems to be devoid of all political urgency. The third Thursday in April is the Icelandic first day of summer when parents give their children something seasonal for summer presents such as a ball to play outside. Spring might also be the time when some next step might be taken towards lifting the capital controls.
The young and yet so lethargic power-players
The left government, in power from spring 2009 until spring 2013, surely got some things done such as targeted debt write-down for households, steering Iceland through an IMF program and dragging the country back to growth already by mid-2011. However, it was consumed by infighting and was its own worst enemy. Following this government an energetic government focusing on growth of opportunities and ideas, as well as growing the economy would have been a great asset.
A government led by two young coalition leaders – the youngest ever prime minister and a young minister of finance – seemed indeed very promising. However, in many ways the duo seems be heading towards the past rather than the future. The language of the prime minister’s tends to echo patriotic language harking back to the mid 20th century. New appointments often seem to smell of nepotism and old ties.
The Icelandic media has at times focused on the prime minister’s somewhat erratic behaviour; apparently he often goes on un-announced trips abroad. He has the habit of making remarks that then turn out to be factually wrong or misleading. Words seem to come very easy to the prime minister but all too often the substance is doubtful.
With the prime minister as a comparison Benediktsson strikes a more serious and competent tone and demeanour. His approach is conciliatory and he seems widely liked, except by the old guard in the party who still mourns the, perceived by them, golden age of Davíð Oddsson. It has been apparent time and again that Morgunblaðið, with Oddsson as its editor-in-chief seems to side more with Gunnlaugsson than Benediktsson reflecting that the paper is owned 50-50 by companies with ties to the Independence party and the Progressive party. A powerful person in the latter camp is Þórólfur Gíslason, a relative of Oddsson. (If blood ties matter or not is unsure but most Icelanders will see this as relevant).
The two coalition leaders come from families at the heart of the Icelandic power structure. Benediktsson’s family is the core of the Independence party story of power. His namesake, the brother of his grandfather (if my genealogy does not fail me) was a legendary leader of the party from 1963 to 1970, the party’s glorious age. “It’s not enough just to carry this name,” one Independence voter remarked sardonically. Gunnlaugsson’s political family ties only goe back a generation: his father was briefly an MP and his business interests allegedly rose from political connections.
Although the government tension is not apparent on the surface the tension shows in the fact that amazingly little seems to get done. The government is i.a. hovering as to breaking up the EU membership negotiation or not. A recent example is a draft proposal for a new Act on fishery management, expected to be introduced to Alþingi before its summer recess; the proposal’s course is now uncertain. Another topic is the Interconnector, i.e. a cable connecting Iceland to the UK: UK has shown interest in buying Icelandic electricity but the government seems unable to act on this interest, i.a. due to deep-running political and interest divergences on this issue.
On the whole, the government is seen as moving slowly, even remarkably slowly, considering that is has a strong majority and no internal opposition, at least not on the surface. It is also blessed with an opposition, which for a long time seemed to be waking up every day from a crushing defeat the previous night. Only recently the leaders of the Left Green and the social democrats have made a bit of a splash in the political debate.
There are no apparent explanations as to why the government is so lethargic. It is not so much words as action that “don’t come easy:” the prime minister is good at making speeches about the promising future of Iceland but moving beyond the words is difficult.
As one source in the Icelandic business community said there are plenty of examples in the world of countries with natural resources and other advantages that still do not manage to harness what they have. “Capturing the possibilities doesn’t happen automatically.” In Iceland, it seems not to be happening at all.
The latest polls show that the government now has support of 36.4% of the voters, compared to 34.1% end of January and 34.8% mid January. The top line figures are Independence party 25.5%, compared to 24.9% earlier and the Progressive party 13.1%, compared to 12.7%. Hovering around 25% is the Independence party’s destiny now, far from the around and above 40% at the time of Benediktsson’s namesake in power, last seen in the elections in 1999, 40.7%, under Oddsson’s leadership. – The fractioned opposition, four parties, are not moving the voters much.
Yet another committee
Following the meeting between the Winding-up boards and their advisers with the government’s advisers in December the feeling was one of cautious optimism among creditors. At the time, Benediktsson had for months boldly been announcing “a plan” by the end of the year.
Unofficial announcements following the meeting were that everything should be in place to proceed early in the New Year. In his end-of-year interviews and statements the prime minister, in his freewheeling mode, drummed up the optimism by first talking about “a plan” soon, then by the end of January. This has to be seen in context with statements after coming to power in summer of 2013 as to how easy and quick the lifting of the controls would and could be.
The only thing that January brought was a new committee. As earlier, Glenn Kim is the chairman. Others are Benedikt Gíslason, adviser to Benediktsson, and Eiríkur Svavarsson, by now veterans in this field, together with Sigurður Hannesson from MP Bank, a close friend of Gunnlaugsson and two from the CBI, Ingibjörg Guðbjartsdóttir and Jón Sigurgeirsson.
Gíslason used to work at MP Bank and now just recently MP bank’s chief legal officer, Ásgeir Helgi Reykfjörð Gylfason (this long names are uncommon in Iceland) has been added to the committee.* The CEO of MP Bank is Gunnlaugsson’s brother-in-law but as the bank stated in its press release on Gylfason it is proud that the bank’s expert are sought to work on such important issues.
Svavarsson, Hannesson and Gylfason are seen as close to the prime minister. Sigurgeirsson is close to the governor of the CBI, who shares a good understanding with Benediktsson. Apart from speculations of intimacy and allegiance, it is worrying that none of the Icelandic lawyers on the committee has any international experience.
This is the third group set up to work on the capital controls. The feeling is that previous groups have broken apart because of differences of opinion on how to approach the resolution of the three bank estates, a necessary step towards lifting the controls.
What could come next, apart from more procrastination?
Glitnir has made news in Iceland following a leak that Íslandsbanki might be sold to Middle Eastern investors. Earlier, Chinese interest had been in the air. Certainly, selling Arion, owned by Kaupthing, and Íslandsbanki would make a composition easier.
The estates have had plenty of time to calculate a positive outcome. Although no decision was announced for a next meeting after the December meeting it is expected that another meeting will or would follow soon.
Some weeks ago Víglundur Þorsteinsson, an old businessman who lost his company into bankruptcy following the banking collapse, made allegation about wrongdoing regarding the splitting up of the banks, i.a. that creditors had profited unduly. This was not the first time he stated these claims and he has never found any serious support for them. This time the prime minister sided with him, saying this should be investigated.
Brynjar Níelsson, an Independence party MP, got the task of reviewing the claims, which he did by utterly rubbishing them. It is not clear if the prime minister will see this case as a reason to move slowly regarding the estates, probably not, but his support to Þorsteinsson was much noted.
As far as is known the new group is working on proposals towards lifting the controls. The two coalition leaders have often spoken about a “holistic solution,” a “framework” etc. Considering the fact that the two estates ripe for composition, Kaupthing and Glitnir, have very different problems – Kaupthing with no ISK assets beyond its ownership of Arion but Glitnir with ca. ISK100bn in addition to Íslandsbanki – the framework might turn out to be of a general nature so as to accommodate tailored solutions for the estates.
The much discussed exit tax might be pressed for, in order to get the funds the prime minister seems to think can be had from the estates. However, as I have pointed out earlier exit tax does not solve the ISK problem, unless used in a targeted way, as did Malaysia in the late 1990s. Possible solutions have been dealt with in earlier blogs.
The business community is up in arms about the stalemate on controls but the voters do not really sense the effect of the controls, meaning there is only a moderate pressure on the government to act. As pointed out earlier it seems that the two coalition leaders do not proceed on the controls because they really are at loggerheads on how to go about it. There really is no longer anything unknown in this issue. It has all been mulled over, no stone is unturned. What is lacking are decisions, not more analysis etc.
At the core of that dispute is really if lifting the controls is a gain in itself or if Benediktsson is willing to help Gunnlaugsson find a way to lift the controls in such a way that he, the prime minister, can proclaim victory.
*As reported earlier, the appointment of Sigurður Hannesson was first announced by MP Bank, not confirmed by the government until days later. Now the saga is being repeating by appointment of Gylfason: the bank announced his secondment on February 13 but no official announcement has yet been made by the Ministry of Finance. Another indication of the lackadaisical attitude for formalities.
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