Loans
Iceland moves to secure $6BN in loans
Iceland moved to secure $6 billion in loans to refloat its collapsed financial system as Britain said Monday it would welcome a government promise to guarantee its citizens' deposits in collapsed Internet bank Icesave.
The International Monetary Fund agreed last month to lend Iceland $2.1 billion (1.7 billion euros) and help the country raise $3.9 billion (3.1 billion euros) worth of loans from other countries. But approval stalled because Britain argued Iceland needed to first pay back its citizens' deposits in collapsed banks.
Iceland's government said depositors would get up to 21,000 euros ($26,600) from accounts in Icesave, in line with European Economic Area rules. Iceland is not part of the European Union, but its membership in the European Economic Area allows the country to participate in a free economic zone along with the European Union member states.
Both the IMF and the European Union told Iceland that they would not give loans to the country until the dispute was settled. On Sunday, Iceland's Prime Minister Geir Haarde agreed to guarantee the money.
"It was made clear to us that the IMF package and the $3.9 billion of loans from other countries would not be forthcoming unless we cleared the Icesave dispute," Urdur Gunnarsdottir, a spokeswoman for Iceland's foreign ministry told the Associated Press on Monday.
Iceland needs the financing to buy imports and support its currency, which has lost around two-thirds of its value since the beginning of the year because of the collapse of its banking system.
Britain said that it welcomed any progress toward settlement on the issue. "The UK would welcome any progress that would see resolution for UK retail depositors" in Icesave, said a British Treasury spokesman, who declined to be named in line with government policy.
The comment indicates a turnaround for British-Icelandic relations, which had been severely strained since October, when Britain used anti-terror legislation to freeze Icesave's accounts in the UK after the bank collapsed in October. The use of such legislation provoked outrage from Prime Minister Haarde, who called the move a "completely unfriendly act."
The British government would not comment on whether it was planning to extend a loan directly to Iceland to help with its $3.9 billion in additional needs.
Last month, Iceland agreed to repay Dutch depositors in Icesave. The Netherlands was the only other country where the Icelandic Internet bank operated.
"We are excited that it looks like Iceland is making similar agreements with other countries as well," said Hendrieneke Bolhaar, spokeswoman for the ministry of finance.
As part of that agreement, which has not yet been completed, the Netherlands plans to lend Iceland 1.3 billion euros ($1.6 billion). It joins Norway, the Faroe Islands and Poland, which have all already pledged to lend money to Iceland.
Deposits at Icesave amount to around 640 billion Icelandic Krona ($4.7 billion), according to Iceland's foreign ministry.
"We are confident that selling Landsbanki's assets will cover a large percentage of this cost," said Icelandic government spokesman Kristjan Kristjansson.
However, it is unclear how much Landsbanki's assets are worth because of the financial crisis. "There are no real prices out there for anything right now," added Kristjansson.
(Published by AP - November 18, 2008)