Prime Minister of Iceland seeks money and advice from Finland

Geir Haarde: We went to Russia because our oldfriends would not help

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By Tuomo Pietiläinen and Juhana Rossi
     
      According to Prime Minister Geir Haarde of Iceland, the country is still short of two-thirds of the amount of money that is needed to stabilise its limping economy.
      On Friday the International Monetary Fund (IMF) announced that it would grant Iceland a USD 2bn emergency loan.
      “It is difficult to declare any exact figures, but the situation would improve significantly if we were to receive another four billion dollars”, Haarde told Helsingin Sanomat.
     
Haarde arrived in Finland on Sunday for the Nordic Council meeting that is to start in Helsinki on Monday. In connection with the meeting, the prime ministers of the Nordic countries will also get together to discuss the financial market crisis and possible support for Iceland.
      Iceland has asked the other Nordic states for loans. Haarde does not mention any exact figures.
      “I do not want to put any pressure to my colleagues. Let’s see how the negotiations progress”, Haarde says.
     
In practice the Icelandic economy collapsed three weeks ago, when the State of Iceland was forced to assume control of the country’s three largest banks.
      When the bubble burst, confidence in the Icelandic currency, the króna, simply vanished. The monetary unit is not currently being used in the international currency market.
      The country’s central bank is controlling the use of foreign currencies, so that Iceland can buy from abroad indispensable goods and commodities.
      Iceland aims to use the support loans to form currency reserves, so that the króna would be restored as a legitimate currency in international financial trading, Haarde explains.
     
Before the IMF’s Friday announcement of the 2-billion dollar loan, Iceland had communicated that it was negotiating for example with Russia over a four-billion euro loan.
      Haarde says it was his own idea, and born out of the fact that several of Iceland's traditional friends had not shown any inclination to help them out.
      According to Haarde, it was purely a question of finances. “Politically Iceland disagrees with Russia on several questions”, Haarde admits.
      “We have already negotiated once in Moscow, and soon we will meet in Iceland. Thanks to the IMF support, though, we no longer need four billion euros.”
     
Iceland’s traditional allies include at least the United States and Britain. Was Haarde disappointed when Iceland’s NATO partners declined to come to the rescue?
      “We would have expected more understanding in this situation”, Haarde formulates his response carefully.
      The main reason for the collapse of the Icelandic economy was the banks. Haarde acknoweledges that they grew too large too quickly.
      In addition to the banks, certain Icelandic investors also increased their business, such as Thor Björgólfsson, who not too long ago still owned a significant share of the Finnish telecommunications operator Elisa.
      According to the Icelandic PM it would be morally right for the businessmen now to support their home country.
      “By helping I mean that the investors move their funds back into Iceland and make investments there”, Haarde says.
     
In addition to billion-euro loans, Haarde hopes he will receive advice on how to deal with the bank crisis.
      “Finland sorted out its bank crisis extremely well and swiftly. Advice and technical aid is the kind of solidarity that is desperately needed”, he says.
      Haarde admits that the standard of living has fallen through the floor in Iceland. The country’s currency’s value has halved this year, which in turn has caused the price of imported goods to skyrocket.
      The inflation rate has spiralled and is currently around 14%. By the end of next year, Haarde hopes the country will have reined in its inflation to 4-5 per cent.
     
It is very likely that Iceland will enter into a deep recession next year. For example the Glitnir Bank forecast last week that the country’s economy will shrink next year by by between 3 and 7 per cent.
      The IMF, in turn, estimated on Friday that Iceland’s economy may fall by up to ten per cent.
      “It is possible, but I don’t want to say it is likely”, Haarde states.
     
Helsingin Sanomat / First published in print 27.10.2008


Previously in HS International Edition:
  Icelandic shareholder gets two seats on Elisa board (28.2.2008)
  Bank crisis makes Finns nervous (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)

See also:
  Finnish Kaupthing depositors may get money in October (21.10.2008)
  Pension insurers Varma buy Icelandic stake in Elisa (13.10.2008)

Links:
  Nordic Council
  IMF: IMF Announces Staff Level Agreement with Iceland on US$2.1 Billion Loan

TUOMO PIETILÄINEN AND JUHANA ROSSI / Helsingin Sanomat
tuomo.pietilainen@hs.fi, juhana.rossi@hs.fi