Country Report Iceland July 1998 Main report

Economic policy: Gov't takes less interven't approach in prop mkt --

In May the government enacted controversial legislation overhauling the social housing system in Iceland by abolishing the state housing fund (SHF), which had been the main provider of housing loans to house buyers through the issue of housing bonds. The legislation creates a new institution, the housing loan fund (HLF), which replaces the SHF, and merges it with the housing bond department and the workers' building fund. Under the old system the SHF offered low-interest housing bonds with the help of contributions from the state budget which financed the interest- rate differential between housing bonds and the market cost of credit. Under the new regime first-time buyers will be able to borrow up to 70% of the value of the property from the HLF, lower than the 90-100% under the SHF system. The government also intends to lower the operating costs of the whole system -- costs that have weakened the financial position of the workers' building fund -- by allowing the HLF to contract out a large part of its operation to other credit institutions. The reforms have, however, come under heavy criticism from the opposition parties and trade unions who accuse the government of making home-ownership impossible for low- income families, forcing them into the undersupplied rental market.

-- and moves towards a more efficient equity market

Parliament has approved legislation which removes the legal monopoly of the Icelandic Stock Exchange (ISE) to run a regulated equity market in Iceland -- part of a series of deregulatory measures designed to liberalise the financial services industry. The government's main purpose is to introduce competition to the operation of ISE and to remove regulations which limit the liquidity of the market. The legislation contains new provisions for company takeovers and clearer requirements for registered companies to provide information to the ISE. The legislation also creates a clearer demarcation between formal equity markets and over- the-counter markets.

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