Finland to take out big loan to help Iceland

IMF arranges financial package to save Icelandic economy

Martti Hetemäki

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Finland has agreed to provide Iceland with a large loan to help that country in its severe financial crisis. Finland is helping Iceland in the spirit of Nordic cooperation by borrowing the money itself from the international credit market.
      The loan is part of the financial package authorised by the International Monetary Fund, which gives Iceland access to loans worth about ten billion US dollars.
      Also providing credit to Iceland are the other Nordic Countries, as well as Russia, Poland, and the IMF itself.
     
The combined share of Finland, Sweden, Norway, and Denmark in the package is 2.5 billion US dollars, or about EUR 2 billion. No decision has been made on what Finland’s share in this sum should be.
      Also undecided are the terms of repayment of the loan and the interest rate. It is clear, however, that Finland will charge a higher interest rate on the money than what it will itself have to pay.
     
Finland’s share of the package will be disclosed in February at the latest, when the first part of the loan will be paid to Iceland.
      At the Ministry of Finance, Undersecretary of State Martti Hetemäki said that the Finnish share of the loan will be “significant”, even though it will be smaller than that of the other Nordic countries.
      Hetemäki believes that the conditions set for Iceland’s loan programme will help the country get out of its difficult situation and repay the loans. However, there is a risk involved.
      Hetemäki notes that the Icelandic economy is in a truly difficult bind.
      “The Icelandic state is not getting loans on the market at any interest rate. This is the difference from the situation in which Finland was at the beginning of the 1990s”, Hetemäki observes.
     
A large portion of the billions of euros in debt owed by Iceland’s banking system will probably not be paid back. Iceland took three banks, Glitnir, Landsbank, and Kaupthing, which had expanded rapidly on borrowed money, under state control in October.
      Before that, the liabilities of the banks rose to nearly ten times the country’s GDP. The banks’ debts were estimated at 62 billion dollars, according to Thomson Reuters.
      The IMF forecasts that Iceland’s economy will fall into a deep recession next year. Economic growth is expected to decline by nearly ten per cent. The unemployment rate is expected to quadruple to about six per cent.


Previously in HS International Edition:
  Deposits of over 10,000 Finns stuck in Icelandic bank (10.10.2008)
  Icelandic currency soon to be delisted in Finland (8.10.2008)
  Icelandic banks in Finland report no exodus of depositors (2.10.2008)

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