On Monday this week Iceland agreed to decrease capital controls on the economy, but imposed a 39% #Tax on capital leaving the country. The move comes as the International Monetary Fund (IMF) announces Iceland is officially out of the economic recession that is a legacy of the 2008 economic crash.

It is a problematic situation for the Icelandic government and those who invested in the country prior to the financial crisis alike. Iceland froze assets in financial institutions and lenders as part of the 2008 crash, while criminal investigations into the financial crisis were undertaken by Jóhanna Sigurðardóttir's coalition government. The result, as some may be aware, was imprisonment for those implicated in Iceland's financial sector who had traded dangerously outside of regulations, as depicted in the popular film 'Margin Call' (2011).

Since the investigations, the Icelandic coalition government of Jóhanna Sigurðardóttir (2009-2013) had kept creditors assets frozen after letting the island's three biggest lenders go bankrupt, part of the policy of non-intervention and prosecution Iceland has employed. The problem with this is these assets are in the hundreds of billions, and a flight of that currency would damage the Icelandic Crown in international currency markets as Iceland's economy recovers.

Creditors have the possibility of legal action which would threaten to lock Iceland out of the international market just as it is re-emerging from the crisis, which is why a 39% tax on assets leaving the country is treading a delicate line. The government has offered investors in state bonds the opportunity to sell the government their crowns, or purchase new government debt which could then be converted into crowns with the rate of maturity. The fact that Iceland's central bank maintains the exchange rate means those with assets in the country could get a less favourable rate than in the currency markets for their money.

The Icelandic government's agency for managing debt stated the amount caught up in the country is 1,200 billion crowns, equating to £6 billion, although the government has estimated creditor's invested in Glitnir, Landsbanki and Kaupthing, the three failed banks in Iceland at fault in the crash, could see 500 billion crowns or £2,44 billion in recovered assets to repatriate. The country also has 15% of its GDP in foreign investors in government bonds which it fears would take flight without the 39% tax regulation on assets leaving the country.

Those recovered assets from Glitnir, Landsbanki and Kaupthing are still 25% of Iceland's GDP, and for many in the country it represents the unnecessary greed and dangers of the financial system their recent governments since the crash have tried to limit. Currently Iceland's economy is set to grow in 2015. The country saw inflation briefly, but accepted their currency weakening without a fight, which was followed by a strengthening of the crown. The IMF have publicly announced this was done without attacking state welfare, universal healthcare, or education.
#Finance #Investment