The Icelandic government has not formed a strategy to lift the currency restrictions that were established with laws at the Althingi parliament in late 2008, as became evident in a meeting between an IMF delegation and the Confederation of Labor (ASÍ) on Tuesday.
President of ASÍ Gylfi Arnbjörnsson. Copyright: Icelandic Photo Agency.
“We were first and foremost discussing with the representatives of the International Monetary Fund how the way out of the currency restrictions should be safeguarded,” president of ASÍ Gylfi Arnbjörnsson told Fréttabladid.
“Bus as it turned out, a strategy hasn’t been formed,” Arnbjörnsson added. “We are concerned that we are being locked in restrictions that will cause extensive problems in the long run.”
The laws prevent, for example, foreign investors from bringing equity into Icelandic company. They were established, among other reasons, out of concern that foreign investors would sell so-called “glacier bonds” (bonds denominated in Icelandic króna) worth hundreds of billions once they got the chance.
“We discussed the future management of monetary policy and our concern that people in Iceland are fencing themselves off in the thought that an attempt should be made, once again, to reconstruct the economy on the basis of the króna. A currency which is mostly prohibited to use,” Arnbjörnsson recalled.
Arnbjörnsson stated that it must be clear to everyone that long-term currency restrictions would make it extremely difficult for society to fund its operations. “We have considered it important to begin discussions on the European Union and that way provide financial markets with an insight into where Iceland plans to be five years from now.”
“If the future vision is that we plan to be in the same spot with the króna as a currency than we’re not going to reclaim our credibility any time soon,” Arnbjörnsson predicted. “It would have drastic consequences for the nation.”
The Central Bank of Iceland issued an announcement on Tuesday that the conditions are not currently favorable for lifting the currency restrictions. It says that the bank estimates the periodical efficiency of the currency restrictions in connection with the monetary policy “and is working on a strategy to rescind them in stages.”
The announcement further states that one of the main points of discussions between Icelandic authorities and the IMF on the first reviewing of their joint economic stabilization program, which are currently ongoing, is to estimate whether the conditions for freeing the movement of capital between Iceland and other countries are at hand.
According to Fréttabladid, the owners of so-called “glacier bonds” and foreign buyers of Icelandic export goods have with considerable effort come up with a way to elude the currency restrictions and thus currency is not flowing into the country through the Central Bank as hoped when the currency restrictions were established.
Some believe that the currency restrictions have not fulfilled their purpose because only those who the restrictions were supposed to work against are profiting from them.
Click here to read more about the currency restrictions, here to read more about Iceland’s and the IMF’s joint economic stabilization program and here to read more about Iceland and the EU.
