Iceland's rescue package flounders
By David Ibison in Stockholm
Published: November 12 2008 02:00 | Last updated: November 12 2008 02:00
An international bail-out of crisis-hit Iceland appeared to be unravelling last night as the International Monetary Fund withheld official backing for the $6bn plan. Iceland has also been left with a $500m shortfall in the funds for the plan that it had hoped to raise from other international donors.
Iceland agreed a $2.1bn (€1.7bn, £1.4bn) loan with the IMF on October 24 that was due to be approved by its board last Tuesday but which was delayed until the following Friday, postponed again to Monday and has now been put back to an unknown date.
IMF approval is crucial as Sweden, Denmark and Norway have said they will only offer loans to Iceland once the IMF package and an associated economic stabilisation plan have been agreed by its board.
The delay at the IMF's head office comes at the same time as Iceland has failed to raise the full sum it needs to stabilise its economy. A government official said: "There is a $500m gap."
There are deep suspicions in Iceland that the UK government has put pressure on the IMF to delay the loan until a dispute over the compensation Iceland owes savers in Icesave, one of its collapsed banks, is resolved.
Össur Skarphédinsson, acting foreign minister and ministry for industry, told the Financial Times: "I spoke to representatives of the UK who said that before they could assist us they would have to have clarity on other outstanding issues. I was left in no doubt what they were talking about."
No explanation for the delay has been provided by the IMF and Gordon Brown, prime minister, said yesterday that he supported the IMF loan.
A government spokesman said London had "in no way blocked the IMF's loan to Iceland. In fact the UK government fully supports the IMF's loan and looks forward to a swift resolution of this issue".
However, Wouter Bos, Dutch finance minister, suggested there was a link between the IMF plan and compensation disputes with Iceland, which also involve the Netherlands. He told Dutch television that The Hague would oppose the IMF plan until their compensation dispute was resolved.
"Luckily we have powerful allies as Britain and Germany have the same problem with Iceland,'' he is reported to have said.
Iceland is seeking to make up the $500m shortfall with a loan from the US, Japan, Russia or China, but has not had a response to its appeal for help, the official said.
The IMF delay and the failure to raise the necessary funds has left Iceland unable to boost its foreign exchange reserves and unable to re-float its currency, undermining international confidence in its struggling economy after its banking system collapsed last month.
"Iceland is stuck in limbo. It clearly needs a new monetary and exchange rate framework, but it needs the IMF for that," said Paul Rawkins, senior director at Fitch Ratings, the credit rating agency.
The Financial Times Limited 2008