Capital controls action… without unleashing the litigation hounds
Will they or won’t they? That is the question regarding how, if and when the Icelandic government will take the long-announced decisive action on easing the capital controls.
The news keeps seeping out in Iceland is that the Icelandic government is just about to present a plan for lifting capital controls. That would then, most likely and uncontroversially, entail the second part of the CBI action from earlier, when investment opportunities for offshore ISK were reined in. Seems, as I mentioned in a blog on earlier CBI action, that this would then be bonds, most likely in FX, with long maturity.
The main interest for foreign creditors will be what measures are chosen regarding the estates of the failed banks, most notably what form of levy or tax will be chosen. Stability tax is the latest jargon to circulate whereas minister of finance Bjarni Benediktsson mentioned an ISK haircut in his March report on capital controls progress.
As often mentioned on Icelog there is “sky and ocean between” (this is an “Icelandicism”) cutting foreign-owned ISK assets or targeting the entire assets – the former is a classic way under similar circumstances, the latter would be an all-Icelandic solution.
What the government is really struggling with here is how to tax only foreigners without touching Icelandic entities. If such discrimination were simple it would have been done long ago but it clearly is not: a whiff of discrimination would unleash the litigation hounds. This is the main issue and also the main reason for it taking so looong to come up with a solution: the government has, I am told although this is staunchly denied, been looking for a solution that does not exist. And that is famously very time-consuming – a grand “sprecatura” as the Italians would say.
As before, the Icelandic economy is slowly being starved of oxygen – and as before, qui vivra verra.
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Bjarni claims a bill will be presented next week, do you think it will actaully happen?
If so, have you heard anything new about what’s in it?
Takk!
Hallam
23 May 15 at 3:18 pm
I haven’t heard anything more than I’ve blogged already. BB has been promising a solution/bill for a long time, also Gunnlaugsson.
As the situation is now in Parliament, where MPs are i.a. fighting over energy issues, it seems unlikely. On the other hand, there are still so many unfinished bills that it’s unclear when Parliament will go on summer leave so maybe the government will throw a capital controls plan in at the very end. – With this government, everything seems very unpredictable.
Sigrún Davídsdóttir
24 May 15 at 1:30 am
[…] I have said time and again (after all, most things have been said regarding the capital controls, now it is just waiting to […]
Capital controls: common sense or panic politics at Sigrún Davíðsdóttir's Icelog
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