Sun, Oct 12, 2008 page11

• Iceland more isolated than ever in financial meltdown

  • AP
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  As this tiny, volcanic nation in the middle of the North Atlantic finds itself cut off from the outside world, Icelanders are wondering who, if anyone, will sail to their rescue.

  Their island country has never felt so alone. Its major banks have failed, its currency has collapsed, its stock market is suspended — and its leaders seem uncertain where to turn for help.

  “Nobody is helping us,” said Kolbeinn Blandon, a car dealer whose European autos were gathering dust on his lot on the edge of Reykjavik.

  Iceland’s economic turmoil just kept on churning on Friday. It’s Straumur-Burdaras financial group canceled its planned purchase of the overseas corporate finance and brokerage businesses of the failed Landsbanki bank, which was taken over by the government this week.

  Icelandic Prime Minister Geir Haarde insisted on Friday the economic situation was “moving slowly back to normal” but admitted that some residents and industries would be hard hit for a long time.

  “It will take us several years probably to recover in some areas. Some people have lost their life savings,” he said.

  Icelandic officials have held talks with a visiting IMF delegation, but Haarde has been reluctant to commit to receiving funding from the world body.

  “The IMF are our friends, they want to help, but we still haven’t made up our minds whether or not we want to enter a program” with the conditions they might set, Haarde said on Thursday.

  The IMF said it had activated emergency lending procedures — last used during the Asian Financial Crisis a decade ago — to speed up help to struggling economies.

  None is struggling more than Iceland, whose economic fall has been even more rapid than its spectacular rise. Deregulation and a 1990s stock market boom fueled the rapid growth of Iceland’s banking sector, which came to dwarf the rest of the economy and provided financing for deals that snapped up businesses around the world.

  When global liquidity markets dried up, the banks struggled to refinance their heavy debts.

  Now Icelanders are watching helplessly as their economy implodes.

  The government has seized control of the country’s top three banks; it started then abandoned an attempt to fix the value of Iceland’s currency, the krona, and it closed the stock market until next week.

  “From the politicians’ comments, they see themselves as too proud to go to the IMF,” said Venla Sipila, a senior economist at analyst Global Insight. “But that’s what they should do if they want to avoid even further deterioration in their creditworthiness.”

  Haarde has instead turned to Russia, from whom Iceland is seeking a 4 billion euro (US$5.4 billion) loan — a move that has raised eyebrows in some quarters. Many are wondering what Russia will seek in return from NATO member Iceland.

  “I have no indication they are asking for anything unusual or unnatural in return,” said Haarde, who pointed out that other European countries have not exactly rushed to Iceland’s help.

  On the contrary, the UK, one of Iceland’s nearest neighbors, has frozen Icelandic bank assets and threatened legal action to recoup Britons’ savings in subsidiaries of the failed banks.

  Paul Rawkins, an Iceland expert at Fitch ratings in London, said Iceland “contacted a lot of governments and Russia is the one that came through.”

  “Everybody else is too busy with their own troubles,” he said.
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