Sigrún Davíðsdóttir's Icelog

International ad campaign and un-worried Icelanders

with 4 comments

The offshore króna holders have now taken to the international media to cry out over the unfair treatment they have been submitted to by the Icelandic government. As earlier, they have allied with a strongly libertarian  organisation, Institute for Liberty, a think-tank of sort. Perhaps the ads will shake international investors but the effect in Iceland seems to be next to none and the move is clearly not intended to win them friends in Iceland. Perhaps it’s too early to tell but so far, the International Monetary Fund does not seem to side with offshore króna holders and rating agencies seem forgiving. All of this is taking place as Iceland has taken yet another step to lift capital controls, which are now almost entirely lifted for both businesses and individuals. 

After placing articles in various international media recently, “Iceland Watch,” an initiative organised by a so-called think tank, Institute for Liberty with the slogan “Defending America’s Right To Be Free” has now taken a new step: placing an ad in US, Danish and Icelandic media. As mentioned earlier, DCI Group, a political PR group based in Washington acts on behalf of the funds involved.*

If Iceland will be hit with a full-force international legislation the offshore króna holders may be the last to laugh but so far Icelanders are just shrugging their shoulders at the ad campaign they don’t really understand.

A clever campaign?

It’s not clear to me who this campaign is supposed to stir and shake. Here in Iceland, very few people have any particular understanding of the issues at stake. After the very unexpected outcome of the EFTA Court Icesave ruling in January 2013 most Icelanders will feel there is little  to fear from international courts.

Of course an erratic opinion, the offshore króna case is a different problem but in addition to lacking the insight the words “international litigation” will not sound frightening in Iceland. Given how few Icelanders understand the issues at stake the ads look bizarre to most Icelanders.

There is now an election campaign going on in Iceland, election on October 29 and the offshore króna situation doesn’t figure at all. Nor are the capital controls an issue since they have now been lifted on domestic entities and individuals. I’ve earlier pointed out that Icelanders didn’t really seem to notice when measures to lift capital controls were announced.

I’m not sure the campaign rocks the boat among international investors. Anyone with a nuanced understanding of the Icelandic situation will sense that the Iceland Watch claims are not really fitting the situation in Iceland but bombastic, unintelligent and wide off the mark.

Select default? Doesn’t sound like it according to  IMF or rating agencies

I have earlier expressed surprise at the action taken in Iceland. Iceland is clearly exposing itself to a legal risk – there is a question of discrimination, as the offshore króna holders claim and given the good times in Iceland it’s difficult to argue for the haircut.

That said, it’s interesting to observe that neither the IMF nor rating agencies, have so far admitted to the haircut potentially being a case of selected default. The offshore króna holders might have wanted the international community to kick Iceland in place but no one is moving for them except those the króna holders muster to speak their case.

Choosing Institute for Liberty as an ally is intriguing but perhaps not surprising given that many  large players in the hedge fund world have libertarian leanings.

The offshore króna saga according to the CBI

In its latest Financial Stability report the CBI spells out the offshore króna problem:

Important steps have been taken towards lifting the capital controls in recent months. In May, Parliament passed legislation on the treatment of offshore krónur, providing for amendments designed to ensure that the special restrictions applying to offshore krónur under the capital controls will hold even though large steps are taken to lift controls on individuals and businesses. In June, the Central Bank of Iceland held a foreign currency auction in which it invited owners of offshore krónur to exchange their krónur for euros before general liberalisation begins. Although most of the bids submitted in the auction were accepted, large owners submitted bids at an exchange rate higher than the Central Bank could accept, and the stock of offshore krónur was therefore reduced by one-fourth. During the summer, the Central Bank set the Rules on Special Reserve Requirements for New Foreign Currency Inflows, and afterwards there was a reduction in new investment in domestic Treasury bonds, which can prove to be a source of volatile capital flows. With the passage of a bill of legislation in October, most of the capital controls on individuals and businesses have been lifted.

This is of course the offshore problem according to the CBI and Icelandic authorities, so far neither challenged by the IMF nor, perhaps more surprising, the rating agencies. The four large offshore króna holders will beg to differ.

Here some earlier blogs on the offshore króna problem.
*I was interviewed today on Danish TV2 where I made the regrettable mistake of saying that the DCI Group is a lobby organisation. My sincere apologies: DCI Group is of course, as I have mentioned earlier, a PR firm; here is their website.
Updated: The four funds holding offshore króna assets are Eaton VanceAutonomy Capital,  Loomis Sayles and Discovery Capital Management (sorry for not naming them earlier but these are the four funds).
Updated: I’ve been made aware that Loomis Sayles is not at all involved in the Iceland Watch campaign against Iceland. I’m sorry that my earlier information here was not correct.

Follow me on Twitter for running updates.

Written by Sigrún Davídsdóttir

October 19th, 2016 at 8:09 pm

Posted in Uncategorised

4 Responses to 'International ad campaign and un-worried Icelanders'

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  1. Do the four largest offshore krona holders have names that are publishable? Who are these people or entitiies….exactly?

    Lee Nelson

    20 Oct 16 at 1:54 am

  2. Hi Lee, sorry for not naming them earlier but I’ve now updated the blog with the names of the four funds.

    Sigrún Davídsdóttir

    25 Oct 16 at 2:21 pm

  3. thanks very much.

    Lee Nelson

    25 Oct 16 at 6:12 pm

  4. […] but absolutely not in the way the ads chose to portray it; see here and here; more generally here). From over 40% of GDP end of November 2008, when the controls were put in place, the offshore […]

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