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From control by capital to control of capital: Iceland's boom and bust, and the IMF's unorthodox rescue package

Sigurgeirsdottir, Silla and Wade, Robert H. (2015) From control by capital to control of capital: Iceland's boom and bust, and the IMF's unorthodox rescue package. Review of International Political Economy, 22 (1). pp. 103-133. ISSN 0969-2290

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Identification Number: 10.1080/09692290.2014.920400


For decades past the IMF has been a byword for economic orthodoxy, which included disapproval of policy limits on cross-border capital flows. But in 2012 it announced a new "institutional view" giving more scope for capital flow management and in effect restricting the rights of capital owners. The Fund's program in Iceland after the October 2008 crash helped to pave the way; it was the first time the Fund had endorsed capital controls in a developed country. The essay describes Iceland's boom and bust, and how the government and IMF tried to manage the crisis. With IMF support, the government implemented capital outflow controls, initially as an emergency response and then as a longer-term stabilization measure. The control regime evolved in a complicated "game", sometimes referred to in public debate as "the battle of Iceland", between the central bank implementing a professionally-led capital account liberalization strategy versus political parties seeking to turn the controls to their advantage. From this political economy perspective we explain why the "temporary" capital controls remain in place more than five years on. At the end we draw some broad lessons from the Iceland case for the financial booms and busts to come.

Item Type: Article
Official URL:
Additional Information: © 2014 Taylor & Francis.
Divisions: International Development
Subjects: H Social Sciences > HJ Public Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Date Deposited: 12 Jun 2014 16:19
Last Modified: 20 Oct 2021 02:14

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