Iceland OKs some foreign investment as it slowly lifts capital controls

[COPENHAGEN] Iceland, in the slow process of lifting capital controls it imposed after a 2008 financial meltdown, said on Friday its pension funds would be allowed to invest 20 billion Icelandic crowns (S$222.2 million) abroad.

The Icelandic central bank said the funds would be available in the first four months of this year and follows a similar move last year when pension funds were allowed to invest 10 billion crowns in the second half.

The central bank has long said Icelandic pension funds should be able to invest abroad to diversify their own portfolios.

Authorities in Iceland struck agreements last year with creditors of three failed banks, which once held assets worth over 10 times the country's gross domestic product, on how they will repatriate any funds recovered.

That agreement is seen as a critical step before controls are lifted although officials have said that the process of removing them will be slow and carefully planned.

The central bank has said it would intervene on the foreign currency market to keep the crown stable once it is allowed to be traded more, and that today's Icelandic banks will have their activities limited to mostly domestic operations.

The government has had to strike a balance between returning the country to international financial norms and ensuring that once capital controls are lifted, money does not flow out of the country so fast the currency crashes and the economy suffers.

REUTERS