the controls therefore provided shelter for restructuring of private sector debt and the financial system as a whole and afforded monetary policy the room to concentrate more on domestic economic conditions than would otherwise have been possible. the benefits of the capital controls are most pronounced during the resolution of the balance of payments problems proceeding from the collapse of the financial system. if all nonresidents ’ so - called impatient claims on residents were paid in a short period of time, iceland would pay down foreign debt much more rapidly than is desirable. if worse comes to worst, the deleveraging could amount to roughly half iceland ’ s gdp in relatively few years. in such a scenario, the krona would depreciate sharply, at least over a considerably long period of time, undermining banking system liquidity and public sector finances and making domestic and foreign treasury financing much more expensive and difficult. in this context, it is appropriate to emphasise that iceland is facing a balance of payments problem and not a debt problem. its gross debt currently amounts to 224 % of gdp, and net debt is 52 % of gdp, excluding the debt of the failed banks. the underlying debt position is much stronger, however. estimates prepared by bank staff a year ago suggest that once the old banks ’ estates have been settled and the air has cleared, gross debt will total 230 – 240 % of gdp, and net debt, based on the estimated financial statements of the old banks will be about 60 – 80 %. if the effects of one company ’ s subordinated debt to its owners are excluded, net debt declines by another 40 – 50 % of gdp. these estimates are subject to considerable uncertainty. the figures are currently being revised to take account of the most recent data, but there is a strong likelihood that iceland ’ s underlying debt will be roughly the levels seen at the turn of the century when all is said and done. the problem is that too large a share of it is short - term debt and without a negotiation process. the capital controls are intended to bis central bankers ’ speeches provide the space and negotiating position needed to address this situation. in this context, it is important that payments from the estates of the failed banks are no longer exempt from the provisions of the foreign exchange act restricting cross - border movement of capital. structuring the resolution of and disbursements from the estates makes it possible to prevent them from causing instability. in the near future, the bank will describe more fully how it intends to use its expanded

powers to steer payments from the estates of the old banks. it is clear that asset recovery from the estates will not be affected. furthermore, every attempt will be made to ensure that disbursements do not cause a balance of payments problem ; however, payments that have no bearing on iceland ’ s balance of payments problem will be allowed to be disbursed as speedily as possible to creditors. this applies in particular to foreign - denominated claims on non - residents. ultimately, it is in the best interests of iceland and the failed banks ’ creditors to safeguard economic and financial stability, as is made plain by the fact that one of the creditors ’ largest assets is their stake in the new banks. it is the authorities ’ duty to ensure that the capital controls are not a haven in which violators and circumventors can profit – and such profits can be substantial in some cases. these profits are not based on any value creation, nor do they fall from the skies like manna from heaven. far from it : these profits are obtained at the expense of those who either have no opportunity to circumvent the controls or who belong to the majority of people who abide by the law. the cost emerges in an excessively weak krona, elevated inflation, and higher interest rates. this is why it is so important to close the loophole entailed in cross - border transfer of payments on amortised bonds. it is also why the surveillance and investigation of the bank ’ s capital controls surveillance unit and the activities of the special prosecutor ’ s office are so important. whether or not the capital controls should exist is, of course, a subject for debate, but while they do exist, not enforcing them to the maximum extent possible would simply be discriminatory. in a broader context, i think it is useful to think of the capital controls as tools that provide short - term benefits related to economic and financial stability but have associated long - term costs due to trade restriction, and these costs grow over time. untimely and poorly structured removal of the controls could jeopardise economic and financial stability and entail substantial short - term costs. careful structuring of the liberalisation process will significantly reduce this risk, although it will not eliminate it. the problem is that we know the signs of these effects but not their magnitude. at present, there are no research findings on the costs associated with capital controls or how much those costs rise each year