Iceland towards an Argentina-type standoff with vulture funds
Iceland’s next government will be faced with a financial iceberg as soon as it comes to office.
US-based vulture funds are holding out government bonds to the tune of €1,3bn and are refusing a settlement, dragging Iceland into an Argentina-type standoff.
Skeleton’s in the Closet
Icelanders go to the polls on October 29. The current Progressive Party administration is likely to be met with a resounding defeat following the embroilment of its leadership with the Panama Papers scandal.
Be that as it may, the Icelandic economy is seeing an impressive recovery and it is close to dismantling capital controls after eight years when the country’s banking system came to a meltdown.
With interest rates at 5,25%, the country is once again attracting capital while its start-up and tourism sectors continue to thrive. But, the incumbent nationalist-liberal Independence Party has seen its poll ratings tumble from the region of 40% in March to 20% in the last week of September.
There is little doubt the current administration is about to become part of the opposition. But, they are leaving a skeleton in the closet.
An Argentina-type standoff
US vulture funds are staging an Argentina-type standoff.
The government has suspended the service of €1,3bn in government bonds owned by Autonomy Capital, Eaton Vance, Loomis Sayles, and Discovery Capital Management.
On Tuesday, Foreign Minister Lilja Alfredsdottir told Reuters that the dilemma “to pay or not to pay” is a problem for the next government.
Iceland did make an offer for a voluntary restructuring in June, but the vulture funds are holding out demanding more. Two of the funds are already taking their care to the European Free Trade Association (EFTA) in Brussels.
Polls over the last week of September have The Pirates party first with a range of 19-to22,7%. That is a neck-on-neck race with Socialist Democratic Alliance who fair 20,6%-to-23,7%.
The question for the vulture funds is whether a Left-Pirates coalition government is likely to pay up the vulture funds. The question for the new government is “the opportunity cost” of not paying up.