Foreign claimants on the estates of bankrupt Icelandic banks Kaupþing, Glitnir and Landsbanki will be paid recovered funds up to ISK 450 billion (EUR 2.82 billion) in Icelandic krónur in the next year or so, and they will not be able to convert into foreign currency.
Because of the ongoing capital controls in Iceland it will be impossible for the creditors to change their krónur onshore and doing so offshore would yield potentially extremely poor exchange rates. Fréttablaðið sources claim that the investors are being offered a way out of the problem if they invest their money within Iceland for a pre-determined amount of time.
Creditor representatives have met with ministers, MPs and other Icelandic parties trying to identify good investment opportunities for the foreign-owned krónur within Iceland. The potential investments apparently include the purchase of entire companies and sources claim there is an especially positive attitude to investments in the energy sector.
In addition to the expected rush of Icelandic krónur to be paid to bank creditors but essentially locked inside Iceland, there are also ISK 410 billion stuck offshore. The Central Bank of Iceland last month presented its proposal to repatriate the offshore funds by offering the owners of the money (which is of very little use at the moment outside Iceland) to invest it in Iceland on very favourable terms. To take advantage of the offer, the investors would need to match their krónur 50/50 with foreign currency and commit to their investments for a minimum of five years.
As has been widely discussed on IceNews and elsewhere, there is an imbalance between foreign currency/investment interests stuck in Iceland due to the exchange controls and Icelandic currency stuck overseas for the same reason. That imbalance will need to be addressed before the capital controls can be lifted and the above two methods are seen by those concerned as ways of achieving that. It is also hoped that the flow of investment will help ease the lack of inward investment caused directly by the currency controls and that returns for the foreign investors will be positive so that they keep their money in Iceland by choice once the controls are lifted.