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| Iceland scouts for cash to ward off national bankruptcy |
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Time is GMT + 8 hours
Posted: 16-Oct-2008 02:21 hrs |
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| Few customers are pictured inside the Kringlan largest shopping center in Reykjavik on October 13, 2008. Iceland, hit gale-force by global financial turmoil, was Wednesday searching for cash from a range of sources in a desperate attempt to ward off national bankruptcy. |
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Iceland, hit gale-force by global financial turmoil, was Wednesday searching for cash from a range of sources in a desperate attempt to ward off national bankruptcy.. In the space of just a few months, Iceland's entire financial system has collapsed and the tiny Nordic nation has gone from being viewed as a European success story to the continent's sickest patient.. Since the beginning of October, Iceland has been forced to introduce emergency laws to save the once booming financial sector, allowing the government to take control of all banks and financial bodies, take over assets and merge institutions.. Since then, the state has nationalised the country's three biggest banks as the central bank has desperately sought cash from various sources to keep the country running.. An Icelandic delegation is currently in Moscow trying to negotiate a massive loan of as much as four billion euros (5.5 billion dollars), according to an initial announcement from the central bank last week.. Icelandic Prime Minister Geir Haarde however insisted later that "the size of the Russian loan, if it is a loan, which is not definite, has not been decided.". While details surrounding negotiations with Moscow have been shrouded in secrecy, it seems that Iceland, a member of NATO but not the European Union, only turned to the Kremlin after its traditional Western allies refused to help.. When asked whether he feared negative political consequences from entering into a massive loan agreement with Russia, Haarde told reporters: "I don't necessarily think that there should be any. We look at this as a non-political deal.". "I don't know of any particular political strings that the Russians would want to attach to this," he added.. Icelanders were also busy working their connections on the other side of the Atlantic as Reykjavik considered seeking a loan from the International Monetary Fund (IMF).. If granted, it would be the first IMF loan to a Western European country since Britain in 1976.. "We're entitled to their services like everybody else, but there is no decision on behalf of the government as to whether or not to apply for a loan, and there is no decision on behalf of the IMF as to what kind of conditionality would be involved," Haarde said.. "We're just keeping our options open. We want to see what they will require and what they can offer," he added.. If the island does opt to play the IMF card, it could be viewed as a national humiliation, but many experts say Reykjavik has no choice.. In the past week alone, the Icelandic state has not only been forced to take over all the main banks, which all risked falling into the abyss for lack of liquidity, but has also had to give up trying to peg its plunging krona to the euro.. All trading on the Reykjavik stock exchange was also suspended for three full days, and when it finally reopened Tuesday the exchange's main index was deeply disfigured after being stripped of all financial stock, which had made up around 75 percent of its value.. Iceland's dramatically transformed stock exchange offers a clear indication of the massive blow dealt to the country's economy, recently based almost entirely on a financial sector that represented between eight and 10 times its gross domestic product.. The Nordic nation of 313,000 people, which over the past decade has seen its economy grow on average four percent a year with a peak of 7.7 percent in 2004, has thus gone from prosperity to the brink of bankruptcy in a week.. In its ongoing struggle to boost Iceland's tortured economy, the central bank said Tuesday it had drawn on swap agreements with Denmark and Norway worth a total of 400 million euros (546 million dollars).. The central bank also made a surprise announcement Wednesday that it would lower its key interest rate by a whopping 3.5 percentage points to 12 percent.. "The Icelandic banking system has not been able to withstand the trials it has faced as a result of difficult market conditions, global deterioration of confidence in economic affairs, and domestic risk appetite," it explained.. The decision to so drastically cut its key rate indicates that Iceland has, at least for the time being, given up its goal of many years to push its towering inflation down to a 2.5-percent target.. "It's a catch 22. We have two problems going in two conflicting directions," Landsbanki analyst Ludvik Eliasson told AFP.. "This move is telling us that maybe the government has taken too long" to take the necessary measures to revive the economy. — AFP
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