2008-11-13 :: business.timesonline.co.uk :: Iceland rescue deal held up after calls for guarantees

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5142432.ece

November 13, 2008
Iceland rescue deal held up after calls for guarantees
Carl Mortished

Demands by a group of nations, including Britain, that Iceland must compensate foreign depositors who lost money in last month's collapse of the country's banks have put a brake on a multibillion-dollar rescue package being set up by the International Monetary Fund.

The Netherlands, Germany and Britain are believed to have demanded that any such rescue package must be conditional on guarantees to foreign depositors.

A shortfall of about $500 million (£332 million) in funding for the proposed deal remains unresolved while the parties argue about Iceland's commitment to reimburse depositors.

A spokeswoman for the IMF confirmed that funding the package had become a problem.

“The programme needs to be fully financed before we can take it to the IMF's executive board. We are still in the process of ensuring that we have the needed financing. We are making good progress and expect a board meeting soon,” she said.

Wouter Bos, the Dutch Finance Minister, said yesterday that the IMF bailout should be conditional on Iceland reimbursing those who lost money in its banks.

“Iceland concluded agreements with several countries [to reimburse the losses of depositors] and we think that Iceland must honour those agreements before getting assistance from the IMF,” a spokesman for the minister said.

After the collapse of Icesave, the foreign business of Landsbanki, in October, the Icelandic Government agreed to reimburse Dutch clients of the bank for sums up to €20,887 (£17,705) per depositor.

Europe stepped into the breach last Friday, promising an unspecified amount of money.

Geir Haarde, the Prime Minister of Iceland, said that he had received a letter from José Manuel Barroso, the President of the European Commission, offering support.The Icelandic leader said that he had tried to accept the offer but had been told that “other matters had to be cleared”. These, he said, referred to the issue of British assets frozen in Icelandic banks.

Iceland nationalised its three biggest banks — Kaupthing, Landsbanki and Glitnir — last month, when the country's institutions were unable to secure funds from other banks to meet their obligations.

The Dutch Finance Ministry said that it was in talks with several other countries, including Germany and Britain, over reimbursing foreign customers of Icelandic banks.

In October, the IMF agreed provisionally to lend $2 billion to Iceland, but the country must find further lenders to complete a $6 billion rescue package needed to refinance the Icelandic Government.

Denmark, Norway and Sweden have promised funds for their Scandanavian peer and Iceland has also been in in talks with Russia, Japan and America.

Doubts about the rescue package weighed on the Icelandic currency yesterday and sent it falling 5 per cent against the euro to 205 crowns.

Have your say

I stand to loose my lifes savings in the failed Kaupthing subsidiary in the Isle of Man, they issued a guarantee that if this happened they would cover 100% of depositors money, damn right they should honour these promises before we bail them out . my life is ruined if they get away scot free...

Stuart Roberts, bolton, uk