Roundup: Iceland to remove capital controls

Iceland's government Monday announced a plan to remove the long-existing capitals control by imposing a 39 percent stability tax on the estates of the failed Icelandic banks.

Announcing the plan named Comprehensive Strategy for Capital Account Liberalization, Iceland's Prime Minister Sigmundur David Gunnlaugsson said: "It is clear we can't wait any longer. We need to take measures for the banks to enter into composition to enable lifting of the controls."

Iceland imposed the capital controls to prevent billions of dollars of assets from exiting the economy in November 2008 following Iceland's three top banks, Landsbanki, Kaupthing and Glitnir, all imploded after gaining assets worth around 10 times the amount of the country's economy.

Iceland's banking collapse resulted in the country spiraling into its worst recession since the Second World War, forcing the government to go to an International Monetary Fund-backed group for a bailout just to stay afloat.

Comprehensive capital controls were introduced in Iceland at the time as a part of Iceland's government economic program in order to prevent serious difficulties as regards Iceland's balance of payments, and with the aim of stabilizing the exchange rate without over reliance on the interest rate tool.

The capital controls have managed in stabilizing the economy, however, were also acting as a barrier to trade and foreign investment.

The total value of the assets underlying the problem addressed in the authorities' strategy is about 1,200 billion Icelandic krona (9 billion U.S. dollars), including 500 billion krona of the failed banks' estates, 400 billion krona of the estates' foreign-denominated claims against Icelandic residents, and 300 billion krona of the offshore krona held by non-residents, according to the plan.

The authorities' strategy prevents these assets from flowing into the foreign exchange market and thereby adversely affecting Iceland's balance of payments, the plan says.

According to the plan, a new bill of legislation on a stability tax imposes a one-off 39 percent tax on the total assets of the failed commercial or savings banks in accordance with their assessed value as of Dec. 31, 015.

If the failed bank estates complete composition agreements by the end of 2015, they can obtain authorization to transfer funds, provided that they fulfill the stability conditions; otherwise, they will be subjected to a one-off 39 percent stability tax, according to the plan.

The tax is intended to address the negative effects that would derive from full distribution of capital upon the conclusion of taxable entities' winding-up proceedings, according to the plan. Endit