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Old 11-12-2008, 01:54 AM   #1
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Default Iceland's rescue package flounders

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.

Copyright The Financial Times Limited 2008

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Old 11-12-2008, 02:11 AM   #2
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my summary: (as I understand it)

Iceland seeks for $6B to save its economy,
part of which is a $2.1B loan from IMF under certain conditions
IMF didn't approve yet.
Some $0.5B "gap" occurred also. (in addition. Chances to get
the $2.1B may increase if the $0.5B-gap is resolved)

UK and others want to pressure Iceland to accept Icesave-bank compensation

unable to re-float its currency

it seems to boil down on what Iceland will accept to pay back later,
if the economy recovers
a chart says more than 1000 words
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Old 11-16-2008, 09:49 PM   #3
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Iceland Reaches Accord With U.K., Holland on Icesave Deposits

By Helga Kristin Einarsdottir

Nov. 16 (Bloomberg) -- Iceland has reached an accord with the U.K. and the Netherlands on repaying depositors at Icesave, the online banking unit of failed lender Landsbanki Islands hf.

``We accept the EU directive on deposit guarantees and will undertake the obligation to pay what Landsbanki assets will not cover,'' Prime Minister Geir Haarde told reporters in Reykjavik today. ``Over what period the payments will be made and the annual payment obligation is still to be negotiated.''

An agreement may pave the way for the Atlantic island to clinch a $6 billion loan led by the International Monetary Fund. The IMF has withheld its $2.1 billion share of the package until other countries pledge more money. British and Dutch officials have insisted that the government reimburse international depositors and not just those in Icelend.

``Talks between Iceland and several EU member states, initiated by the French EU Presidency, lead to a common understanding that will form the basis for further negotiations,'' Prime Minister Haarde told reporters today.

To help resolve the conflict, Iceland agreed to accept liability on deposits up to the 20,887 euros ($26,563) required under EU law, Foreign Minister Ingibjorg Solrun Gisladottir said on Nov. 14. Iceland had initially said its deposit guarantee would only cover domestic savings.

``We are isolated when all 27 EU member states agree that we have to reach an accord on Icesave,'' he said.

Deposits at Icesave may amount to as much as 5.5 billion pounds ($8.2 billion), the size of Iceland's economy, according to a report by Jon Danielsson, an economist at the London School of Economics. Gisladottir put the figures at 640 billion kronur ($3.7 billion) on Nov. 14.

Iceland's loan from the IMF will be completed Nov. 19, Managing Director Dominique Strauss-Kahn said at a press conference after G-20 talks yesterday in Washington.

The island, which had the fifth-highest per capita income in the world last year, needs the financing for imports and to create enough foreign reserves to support a free-floating currency.

The krona collapsed last month, and has lost more than two thirds of its value since the start of the year, following the failure and state takeover of the country's three biggest banks.

To contact the reporter on this story: Helga Kristin Einarsdottir in Iceland at [email protected].
Last Updated: November 16, 2008 14:36 EST
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Old 11-16-2008, 11:32 PM   #4
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A wonderfully written, specific, and filled with context on what it is like to live in a first-world country teetering at the edge of solvency, and without access to trade/currency.
There is no daytime TV in Iceland. Parents are at work and children at school, so the test card, that feature of a bygone age, is the only thing aired. For the transmitters to be switched on in mid-afternoon and a sombre-looking Geir Haarde, the prime minister, to appear behind a desk, a national flag at his side, it had to be serious – and it was. The country was on the verge of bankruptcy; the government was taking control of the banks and was going to assume far-reaching powers to secure the safety of the nation and its savers.
As I watched, I felt a detached sympathy for those poor people living on a blighted island – until it dawned on me that I was one of them. Recent events had savaged my net worth by 60 per cent and pushed up my cost of living by more than 20 per cent. Iceland’s plight was mine, too. What I failed to appreciate at the time was the emotion of this unprecedented television address, particularly in the way it finished:
“Fellow countrymen ... If there was ever a time when the Icelandic nation needed to stand together and show fortitude in the face of adversity, then this is the moment. I urge you all to guard that which is most important in the life of every one of us, to protect those values which will survive the storm now beginning. I urge families to talk together and not to allow anxiety to get the upper hand, even though the outlook is grim for many. We need to explain to our children that the world is not on the edge of a precipice, and we all need to find an inner courage to look to the future ... Thus with Icelandic optimism, fortitude and solidarity as weapons, we will ride out the storm.
“God bless Iceland.”
Edda, my partner, was in tears on the sofa beside me.
A drive across town later that afternoon, October 6, at first gave grounds for comfort. The roads were as full as usual for the Reykjavik rush-hour – a half-hour build-up of traffic. Aircraft flew in and out of the downtown airport, students made their way home from schools and universities – note the plural – while visitors went to hospitals and fitness fiends to sports clubs. Reykjavik showed all the outward appearances of carrying on.
But a different picture began to emerge from the hourly news bulletins on the car radio. The Icelandic krona’s freeze in the capital markets had now spilled over into the day-to-day transactions of Icelanders abroad. Holidaymakers and business travellers venturing “til Útlanda”, as it is called, found their credit cards refused, and those wishing to buy foreign currency could not find willing sellers, aside from one or two who limited their purchases to €200.
Read the whole thing.
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flounders, iceland, package, rescue

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