By Monica Sowa, International News Writer
In 2008, three of Iceland’s largest banks, Glitner, Landsbanki, and Kaupthing, collapsed leading the country into a financial crisis unlike any it had seen before. According to the NY Times, the combined assets of the banks were over $185 billion, which is 14 times the size of Iceland’s economic output. The country’s economy and currency value started rapidly declining as a result, causing the government imposed capital controls being used to help stabilize them.
Capital controls consist of any regulation implemented to limit the inflow and outflow of foreign capital to the domestic economy; this can include tariffs, taxes, and legislation. The government, with the help of the International Monetary Fund (IMF), implemented these capital controls as a means of keeping the country from entering a severe depression. The controls were put in place to keep money from leaving the country.
Originally, the capital controls were to last six months, but seven years later, they are still intact with the last of them being lifted in the coming week. Although they have lasted longer than anyone has expected them to, the capital controls have been successful in leading the country’s economy to a steady recovery. As helpful as they have been to the success of the country’s recovery, they have also deterred new investments and increased the cost of borrowing, according to the New York Times.
Iceland’s government has been incrementally lifting these controls over the past year, ensuring that there are no shocks to the economy, and this week the last of the controls will be lifted. According to Iceland’s minister of Finance and Economic Affairs, Benedict Johannesson, “Iceland’s careful, measured approach to lift capital controls was developed and approved with domestic and international support.”
This change will ease the restrictions placed on households and businesses because the capital controls will be lifted off Iceland’s citizens, businesses and pension funds. This removal represents Iceland’s return to international financial markets.
Iceland’s recovery can be attributed greatly to the increase in tourism it has seen. Tourism in the country has increased by 40 percent since 2015 with over 1.8 million people having visited the country just last year. The greatest contributors to tourism were from the UK and the US. The economy has also grown 7.2 percent in 2016 because of this increase in tourism and the housing market and strong investment in business.
At 3.1 percent, Iceland’s unemployment rate is also lower than both the European Union and the United states. The economy is larger than before and expected to continue to grow at a robust pace, at 2.7 percent, this year.
A version of this article appeared in the Tuesday, March 21st print edition.
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