Iceland’s former central bank governor sent Timothy Geithner, governor of the US Federal Reserve, a letter on 24th October 2008 requesting a billion dollar loan.
The letter, which has been leaked on Wikileaks, begins with the words “Dear Tim”.
Oddsson requests a currency swap agreement in the letter due to the fact that all credit lines to Iceland had frozen after the banking collapse. It is obvious from the letter that such requests had been made and rejected in the past — most recently just the month before.
Leaked US embassy documents reveal that Iceland’s Ministry of Foreign Affairs had not been consulted about Oddsson’s letter and was not immediately given a copy, despite knowing of the letter’s existence.
The then American ambassador to Reykjavik, Carol Van Voorst, sent a long message to the USA in which she points out five strong reasons why America should grant the billion dollar loan, as can be seen on Wikileaks.
Iceland is strategically positioned for security purposes and will be very important in the future for its possible oil and gas, and also its “second-to-none” geothermal energy know-how. As the Arctic ice melts, it will also be increasingly important to shipping.
She explained that the Russians and the Chinese were both in the frame to provide a bailout and that it would be in the USA’s best interest to get there first and be the sort of good friend and ally that Iceland would remember in the future.
Friday afternoon, October 24, 2008, the Government of Iceland
announced that an agreement had been reached with the International
Monetary Fund on a stand-by arrangement subject to IMF Executive
Board approval which could take place early in the week of November
3, 2008. The details of the program will remain confidential until
late next week. For the program to succeed, financing beyond that
provided by the IMF will be necessary.
I refer to the discussions which we had towards the end of September
on our request for a currency swap arrangement between the Central
Bank of Iceland and the US Federal Reserve. I also refer to the
discussions which we had earlier in the year on the same subject. As
you explained to us, the main reasons for the Federal Reserve not
wishing to enter into a swap arrangement with the Central Bank of
Iceland were the relative size of the Icelandic banking system and
then in September discussions the absence of an IMF arrangement. As
you are no doubt well aware of, the Icelandic banking system has now
shrunk significantly. Additionally, as mentioned at the outset, the
Government has announced an agreement with the IMF on a standby
arrangement. For it to succeed, financing beyond that provided by
the IMF will be necessary.
I hereby request participation from the Federal Reserve Bank in the
financing of the economic program. Swap liens are short term in
nature, but we need a financing commitment over a longer term
horizon. Because of this, the Central Bank ideally needs a loan from
the Federal Reserve of a medium term maturity, preferably in an
amount of 1 billion USD. We are also seeking financing from other
I look forward to your prompt and favourable consideration of our
request. As always, I stand ready to provide additional information
as needed. Attached for your information is today’s press release
issued by the Government.”