Iceland Strikes Loan Accord With UK, Netherlands
Iceland agreed to take a $5.44 billion loan from the U.K. and the Netherlands to repay Icesave claims, bringing to a close a seven-month dispute and helping the island draw the next tranche of an international bailout.
The Atlantic island must pay back the loan over 15 years, according to a joint government statement sent by e-mail today. The U.K. will lend 2.35 billion pounds ($3.76 billion), the Treasury said, and the Dutch 1.2 billion euros (1.68 billion). It will be interest-only for the first seven years.
Thousands of U.K. and Dutch depositors risked losing their life savings after Landsbanki Islands hf, which offered the high-interest Icesave online accounts, collapsed with the rest of Iceland’s debt-reliant banking system in October, dragging the island’s currency down with it. The island is now relying on its IMF-led bailout to avert bankruptcy.
“There was no other way out of this, but to negotiate,” Iceland’s Prime Minister Johanna Sigurdardottir said at a press conference in Reykjavil today. “Not paying was simply not an option.”
The Icelandic government has estimated the deposits owed are worth 650 billion kronur ($5.26 billion), local media including Morgunbladid have reported.
Prime Minister Johanna Sigurdardottir told local media yesterday the island would pay 5.5 percent interest on the loan, adding that during the term of the loan, the government will try to sell the assets of Landsbanki Islands hf, the failed lender that offered the Icesave accounts.
“This outcome gives us the opportunity to get a rest from this matter for the next seven years,” said Finance Minister Steingrimur Sigfusson at the press conference. “This will help the central bank in bringing down interest rates.”
Iceland, the fifth-richest country in the world per capita as recently as 2007, got approval to for a $2.1 billion IMF loan in November, with a further $3 billion pledged by the Nordic nations, Poland and Russia.
The U.K. Treasury “has also given notice that it proposes to lift the asset freezing order imposed on the U.K. assets of Landsbanki on Oct. 8, with effect from June 15,” the government said in the statement.
“Today’s announcement is a positive step forward for relations between our countries,” the Treasury said. “It will ensure that taxpayers’ interests are protected and that the Icelandic economy can continue in its recovery after very difficult times.”
Source:bloomberg.com
