After postponing the negotiations by the IMF board three times, the fund withheld official backing for the planned $6bn loan to Iceland, Financial Times reports.
The IMF representatives visited Iceland on 24th October and agreed a $2.1bn loan. “Immediate and urgent channels are now necessary to stabilise the Icelandic krona,” Paul Mathias Thomsen from IMF said. “We also need to ensure the fiscal stability.” Read the full article here.
The approval of IMF is crucial as Sweden, Denmark and Norway have said they will only help Iceland financially once the IMF loan is passed by the board and and economic stabilisation plan agreed.
Iceland suspects that the UK government has put pressure on the IMF to delay the loan until a solution to compensate IceSave depositors is found.
Wouter Bos, the Dutch Minister of Finance did see a connection between the IMF plan and compensation disputes with Iceland. “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 said in an interview with Dutch TV.
The Icelandic Minister for Industry and acting Minister of Foreign Affair, Ossur Skarphedinsson commented: “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.”
IMF has not yet given any reason for the delay.
The IMF has approved a $15.7bn loan to Hungary on Friday.
Iceland citizens; Why not confiscate the holdings, both financial and real estate, of the greedy bankers that selfishly got you into this mess? AND FLOAT THE ISK!!!!
>AND FLOAT THE ISK!!!!
What at 280 to the Euro, the open market rate?
Its going to be very, very painful.
The only future I see is the removal of the incompetent politicians and their replacement with people who can reject they lies of their predecessors.
Blame has to be applied.
Stan – why should we float the ISK? Until the Central bank has any kind of reserve, the ISK is only going to sink like a stone.
As to confiscate holdings; well, unless there is some evidence that the bankers have done anything illegal, I´d like to hope that we still live in a some-what civilized country that at least abides by the constitution. If you are an Icesave/Edge account owner, I sincerely hope you get your money back, which is very likely. It just might take years, and years and years…
I’m much and much of the opinion that Iceland have to enter “officially” in EU and use Euro.
And I agree with Stan about his comment.
That sound good to me but at the moment we have bigger fish to fry, dont know about the krona
i would not float it,
we need to cut down expences, close embassys to countrys that are not important to us
and find stability, we sold Landsbanki 2002 for 12,3bn ISK its unbelievable to see how much it grew in such a short time,
cut down and reorganize, at least we now know where we stand.
Is someone know how much money Iceland can make selling carbon quota (kyoto protocol)???
floating isk is the only option. get the trouble for some time and try your way sweden or finland did to get ou;t of trouble. accumulate current account surplus. just because iceland enjoyed high living standards doesn’t mean thats permanent. wake up to reality. eastern european countries are in no different position either. you will not be alone in this debt based economic collapsse as it is widespread. in the current case it is unique because ypu are experiencing a currency collapse.
The idea of lending even more money to a financial system which has already borrowed far in excess of its domestic ability to repay does seem odd. Why should governments give big money in exchange for promises-to-pay when existing small promises-to-pay are in default?
What is needed is an external liquidator; some entity that can take over all the bank assets, sell them, pay off all creditors equally at thirty cents on the dollar or whatever, and let Iceland start fresh with New Icelandic Kronur. A well and fairly managed bankruptcy, in other words.
I think the biggest question that everyone is asking is what’s Iceland going to do next? That would be a good follow up article. I think that Iceland’s Prime Minister has a lot to learn with foreign policy, everytime he opens his mouth the country cringes with embarrasment. Iceland should get used to what Russian life is like because that is what the country will look like with the route it is taking, soon they will be hailing Putin. Underestimating the diplomatic Strength and Power of Great Britain was entirely your Idiot Prime Ministers Downfall.
The icelandic president seems to be a loose cannon: (norwegian newspaper) http://www.dagbladet.no/art/utenriks/island/3697419/
Because Iceland is a civilized country with laws?
Just want to add to the discussion the issue that the EURO is un-naturally high and this spring early summer it will drop by about 12-15% and will stay below this new level for 2-3 years.
Also Spain and the UK are two countries in Europe that are heading for really bad times.
Good link PB! I think these links are pretty much the same story but in English:
http://www.barentsobserver.com/russia-invited-to-icelands-airbase.4525408-58932.html
http://politiken.dk/newsinenglish/article596825.ece
Very funny comment from the Russians:
“According to Dagbladet, the Russian ambassador present at the lunch was rather perplexed by the invitation, saying that “Russia does not really need the airport”.”
Hm. My comment was adressed to the first post by STAN. A lot of commentsa seem to have landed while my post was in limbo.
As for why they don’t want to float the ISK, I suspect it is pretty simple: A LOT of Icelanders have financed their hoses with loans from foreign banks.
A political solution that sees a large fraction of the population lose their hoses is not a solution. It would be more accuratly described as a “problem”. Although that does not entirely cover it either. “A disaster” might be closer to the mark.
Keeping the Isk pegged, and accepting the development of a black market is probably the least bad of their options.
Which the debtors should be happy about. I mean, they will be paid in ISK, whatever sum they deposited at the time, I expect.
If the ISk floats, a lot of them might find that their invesment isn’t worth as much as when they started.
Carl Rosenbergs suggestion of a fairl managed bankrupcy is a good one, but I suspect that the vast majority of Icelands debts are to contries, businesses and multinationals. So the vast amount of money would go to them while I expect the average person would get about .05 cents to the dollar on his savings.
The unpleasant truth is that there are not enough money to pay back everyone. And the most unpleasant people will probably end up last in line for the compensations.
”the debtors should be happy about. I mean, they will be paid in ISK, whatever sum they deposited at the time, I expect.” That is fairyland thinking!
”while I expect the average person would get about .05 cents to the dollar on his savings”.I now FULLY understand why IMF loans, for Iceland, were blocked by several countries. You ‘people’ are crooks!
STAN, I think you need to work on reading comprehension:)
1) I am not Icelandic, just an observer with a poor keyboard:)
The point here is that Icelands debts to businesses, countries and multinationals probaly exceeds the debts to private savers -by a large margin. And who has the power? Do you expect that the multinationals are going to drop their claims in favor of Joe Average?
That is the problem with a managed bankrupcy. If everyone gets a fraction of their money back, the fraction the man in the street gets isn’t going to be large.
(The Icelanders won’t have any influence on that in a bankrupcy by the way:)
2) Do you seriously expect the goverment to argue anything else? A fairytale would be expecting all the money to be paid back.
There is simply not that much money there. Considering the depostits to have been in Isk when they were made, and paying back the same amount of Isk to everyone seems as good as it’ll get. Either it was deposited in an Icelandic bank, or it wasn’t.
Any IMF decision is tied of political circumstances.
Worse decision than could adopt Icelandic authorities is to float the Krona NOW, because neither reserves nor concrete agreements are present: if happened, if currency floated, would bring terrible situation to Icelandic citizens: inflation would ‘fly’, and from there, worse can be imagined.
Every day, Central bank places devaluated change rate but, still distant at 300 to Euro in free market.
By the way, not only UK and Spain have difficulties: many countries have difficulties. Perhaps countries with hard growth on last years, have more difficulties now: Iceland, Ireland, UK, Spain.
Other countries have no recent difficulties because, in fact, have not left the difficulties on last 10-15 years: Japan, Portugal, Italy, and perhaps, France could be added.
@Li Customer,
why should we float the ISK? Until the Central bank has any kind of reserve, the ISK is only going to sink like a stone.
You should float the ISK to get the real value of it. You cannot live in fantasy land any more, or you will have to eat grass soon … I don’t know what your government is up to, but now it is doing serious additional damage to iceland.
Only floating exchange ensures that iceland can get the foreign currency to buy necessary good, which iceland needs…. you are getting into the situation where due to domestic politics, you will stubbornly offer 160 ISK/EUR and nobody wants to sell you foreign currency at this rate.
It is pity that obviously your government puts its own political survival first, and survival of iceland second.
By the way …
Press Conference October 28, 2008: Central Bank of Iceland raises the policy rate.
Question:
So there isn’t any target for an equilibrium exchange rate for the future?
Chairman of the Board of Governors:
There is a general objective, that the króna should appreciate and return to normal levels.
As you all know, we do not adhere to an exchange rate target.
Question:
Are you still of the opinion that the króna is the right currency for the future?
Chairman of the Board of Governors:
Yes, I am. I think that it’s the best currency for the future, and I also say that it is perfectly
appropriate to discuss the matter in depth. Under circumstances like those we have experienced, there is nothing strange about it if people
have their doubts and their opinions on this subject, and I respect them all. The Central Bank does not intend to lead or take responsibility for
those discussions. We will leave that to others.
Question:
When will restrictions on foreign currency transactions be lifted and the króna floated again? And how will you support or protect the exchange rate with the FX reserves that you will receive in part from the IMF?
Chairman of the Board of Governors:
We are hoping that the strength of our foreign reserves – both that which comes from the IMF
by agreement, if it is approved, and perhaps supplementary support from other sources, which hasn’t been finally decided but is still being
examined – and the fact that the exchange rate of the króna is very low will have an effect on large investors who might otherwise abandon the
króna and move to other currencies. When they see the changes in the current account balance and so on, perhaps they will see the benefits of
waiting and holding their króna positions until the króna has appreciated and it is more advantageous for them, so that they will get
more for the krónur that they sell. All of this depends on one word – confidence – which is what we must create. The project now underway
is a move in that direction. As confidence is restored and this support strengthens, we will gradually lift the restrictions we have had on
foreign exchange transactions. To repeat once again, it is of cardinal importance for the Icelandic economy that such restrictions be as
short-lived as possible.
Question:
What is the actual exchange rate today? Aren’t we, in essence, rescuing a useless currency?
Chairman of the Board of Governors:
No, we aren’t. We are restoring normal foreign exchange activity after the collapse of the banking system, and we will be successful. ( ??? )
Some impressions:
1st To float the ISK is the only way to know where Icelanders really are.
2nd It is stupid to float the ISK before reaching an agreement with the IMF. Otherwise, the country will sunk very very deep.
3rd Why do yoy say it is not possible to declare banks bankruptcy? It is exactly what has happened: Kaupthing, Landsbanki, etc…, have been nationalised (by 0 euros) and all icelandic assets (and liabilities I suppose) have been transferred to a new bank (owned by the government). Other non-icelandic creditors, clients, etc…, will be assigned to the former banks (non solvent of course).
>>>By the way, not only UK and Spain have difficulties: many countries have difficulties. Perhaps countries with hard growth on last years, have more difficulties now: Iceland, Ireland, UK, Spain.
UK’s Growth has been very low compared to those countries. Spanish property building outranks many other EU countries combined.
Greece is a particular concern and you should add Italy.
And maybe Germany, Holland and Sweden if this is a sign
http://blogs.telegraph.co.uk/ambrose_evans-pritchard/blog/2008/11/11/sp_warns_of_a_debt_financing_crisis_in_europe
The pain will be very widespread.
@Spaniard
No,
THE BANKS HAVE NOT BEEEN NATIONALIZED.
THE BANKS HAVE NOT BEEN DECLARED BANKRUPT.
It is important that you understand this to get the complexity of the situation. Read my comments in this thread, I explained in detail what this means and why foreigners (UK, NL, DE and others) are righfully pissed:
http://www.icenews.is/index.php/2008/11/09/imf-loan-to-iceland-blocked-by-dutch-and-british/#comment-34771
Please, do not confuse the “government administration” of the icelandic banks with the nationalization, and do not confuse their defaults with the bankruptcy.
I seriously think that this is part of the reasons that IMF help was withdrawn. Icelandic government wants to make omelets without breaking the eggs, and IMF said no.
“THE BANKS HAVE NOT BEEN DECLARED BANKRUPT.”
But they should be. The old banks don’t do any business anymore, especially they don’t fulfill their pay obligations, staff and assets have been transferred to the new banks, and it’s highly probable that the volume of debt outweighs the value of the remaining assets. They are empty shells, not active corporations. I mean, really, does Icelandic bankruptcy law allow enterprises to stay in such a undefined state without having to declare they’re insolvent?
@gray,
I guess no, that’s why they passed emergency legislation to allow them to do this the night before.
With this (and not some terrorist list, as paranoid icelanders will tell you) they achieved that no one is willing to give money to iceland and no one is willing to ship anything there without prepaid guarantee.
“they achieved that no one is willing to give money to iceland and no one is willing to ship anything there without prepaid guarantee”
Perfectly understandable. When the Icelandic parliament gives such a carte blanche to the government, no foreign company can be sure that their assets won’t simply be seized under the rationale of national emergency. And for a nation so dependent on imports, the negative consequences of this can’t be ignored. The sooner the Icelanders get their stuff sorted out, and get back to normal legislation, the better for them. This is hurting them more than it’s hurting their trade partners, so it should be in their own best interest to make this transitional period as short as possible.
A smart government would be transparent about the plans, and the planned schedule, of course, in order to inspire confidence among foreign partners that these are really only temporary measures. But, sadly, Iceland only has Haarde and his gang…
Looks like the IMF oan not only flaunders, but is actually stalled:
“The International Monetary Fund (IMF) has postponed its decision-making on a USD 2.1 billion (EUR 1.7 billion) loan to Iceland for an undecided period of time without explaining why, according to the Financial Times website this morning.”
http://www.icelandreview.com/icelandreview/daily_news/?cat_id=16539&ew_0_a_id=315250
Now, what could be done to get this urgent issue on the right track again?
“Icelandic authorities suspect that both British and Dutch authorities are standing in the way of the decision because of their disputes with Iceland on the compensation of Icesave account holders.
“It certainly has some effect,” said Prime Minister Geir H. Haarde. “It all hangs together.”
“It is like a snake biting its tale,” Ísleifsson explained. “It appears […] that Iceland needs to find an agreeable solution on its dispute with Britain and some other nations.””
Well, of course nobody expects Haarde to pull the billions for the guarantee fund out of a magic hat, but wouldn’t it be a good idea for him to at least present some negotiable ideas on how to cope with the issue? Something like a plan about the sale of the remaining assets, coupled with a long term credit, for instance? Cause it really doesn’t look like the situation will improve by simply ignoring the elephant in the room…
…Cause it really doesn’t look like the situation will improve by simply ignoring the elephant in the room”….…HAARDE has proven himself to be as worthless as ‘tits on a bull’!
““It appears […] that Iceland needs to find an agreeable solution on its dispute with Britain and some other nations.”
Translation: it appears others expect us to pay back our debts before we get more free handouts. Doh!
Gray & bc123a
Not nationalised?
Please take note (about Kaupthing):
The Board of Directors resigns.
The Government assumes all the powers of the shareholders.
The Government splits the bank: the New Kaupthing Bank (owned by the Government, with all icelandic asets and liabilities) and the former Kaupthing Bank (with the european assets and liabilities, with a receivership comittee).
It sounds like being nationalised, isn´t it?
Spaniard , true but they have only been taken into admission, not nationalized or bankrupt
a group of people are now rewieving the status and what happened, also a independent investigation by a foreign company is being put in motion,
eventually they will be nationalized and assets sold but this takes alot of time, assets are still frozen and most likely will stay that way for some time, the banks were split to keep them operating
lets say someone decided to shut down all the banks in UK at the same time, it may cause some problems, like economy collapsing or riots even
not really the smartest thing to do.
Landsbanki said it has assets tvice the amount of debts, some of them are in loans to customers which are beeing paid back to the bank
KB was not poor either, but at the moment none of this matters, this whole thing is in a deadlock
what the Brits are offering is beeing presented as the only way out, everything else is blocked or frozen, that stinks, i want to know what amount, terms and conditions they offer and would be surprized if any of it were even remotely fair,
given recent actions of the Scots that run UK right now
Spaniard. The key difference is that the Icelandic government don’t actually own Oldbankis, just the Newbankis. The net assets appropriated by Newbankis are represented on the balance sheet of the Oldbankis as an asset (or as a liability if that’s the case).
“It sounds like being nationalised, isn´t it?”
Sure it sounds like that. But officially, they aren’t.
Read the past comment threads, especially Bjarni’s postings, and you’ll understand the hypocritical window-dressing at work in Iceland.
@Spaniard,
well, talk to iceland government. They are adamant, that they did not nationalize it. You and me know what it sounds like, it is them who claim that they did not nationalize them.
Which is understandable, had they nationalized it, they would be from that moment on liable for the bank operation. They would have either to recapitalize it (which is impossible, they have no money, and depositors would at the same time took the money out in the form of withdrawals), or to declare bankruptcy (which would mean that not even icelanders can do business with them), and they don’t want this.
What icelandic government did, is the “government administration” of the banks, a totally illegal middle way, which basically give them right to made business decisions in name of the banks, and not accept any responsibility.
That’s why foreigners are pissed, and the thing is coming back to haunt iceland, first in the form of freezed relations, then in the form of cancelled IMF loan, and, i fear, later, in the form of total economic boycott of iceland.