On Sunday, June 7, 2015, the Government of Iceland agreed to present before Parliament two bills of legislation sponsored by the Minister of Finance and Economic Affairs. Together, the two bills lay the foundation for a comprehensive strategy for capital account liberalization. (Source: Iceland Prime Minister’s Office, June 7, 2015.)
The statement said, “The public interest demands that the capital controls be lifted without jeopardising economic and financial stability. The objectives of the current liberalisation strategy are based on the fundamental principal that the controls must be lifted in stages without upsetting the balance in the economy and without imposing additional financial burdens on the Treasury or the Icelandic people.”
Financial Crisis in Iceland in 2008
Iceland was hit remarkably hard during the financial crisis in 2008. In a matter of days, the country’s three big national banks failed. On October 24, 2008, the Icelandic Government reached an agreement with a mission from the International Monetary Fund (IMF) on a comprehensive bailout program. (Source: Iceland Prime Minister’s Office, last accessed June 8, 2015.)
According to the agreement, the bailout program provided a $2.0-billion loan under the two-year stand-by arrangement. Also, the agreement enabled Iceland to access $830 million immediately.
The objectives of the program were to restore confidence in the Icelandic economy, to restore fiscal sustainability, and to prepare a strong medium-term fiscal consolidation program.
As of the agreement, the capital controls—such as those to restrict money flowing in and out of the country—were imposed by the Government of Iceland that year. A plan was put in place to prohibit money from leaving the country and exacerbating the already-severe crisis. They were meant to last six months; they lasted almost seven years.
Iceland’s government now thinks that the economy has been stabilized and recovered adequately to end controls.
Iceland’s Gross Domestic Product (GDP) grew at 1.9% in 2014 and is expected to grow at 2.7% this year. The unemployment rate was at 5.5% in April of this year. In 2010, it stood above 7.5%. (Source: Statistics Iceland, last accessed June 8, 2015.)