Friday, October 03, 2008

Iceland to Announce Rescue Plan `Very Soon,' Herbertsson Says

By Tasneem Brogger
Oct. 3 (Bloomberg) -- Iceland's government will ``very
soon'' announce a plan to inject liquidity into the financial
system, the prime minister's economic adviser Tryggvi
Herbertsson said.
``We're working on a plan,'' Herbertsson said in a
telephone interview out of Reykjavik today. ``It's obvious that
if you look at the markets that we have to do it very soon.''
The krona has plunged 12 percent against the euro this week
on a series of rating downgrades and after the government bailed
out the No. 3 lender, Glitnir Bank hf. The government is working
``day and night'' to secure a foreign loan, Minister for Banking
Affairs Bjorgvin Sigurdsson told television station Stod 2 late
yesterday.
Herbertsson declined to provide details of the plan. He
ruled out a loan from the International Monetary Fund.
``The money that the IMF would be able to provide would be
minimal,'' Herbertsson said. ``We're an industrialized country,
the fifth-richest country in the world per capita. We are
working on various measures to provide liquidity to the economy
and you'll see that soon, but the IMF is not an option.''
The government's decision to bail out Glitnir through the
purchase of a 75 percent stake will probably be the only rescue
of a commercial lender, according to Herbertsson.
``Glitnir is what had to be done,'' he said. ``The other
banks are in a much better position and we don't think we need
to go into those banks. But having said that, it's obvious that
this can change in a few days.''

`No Hurry'

The government is in ``no hurry'' to sell its stake in
Glitnir, Herbertsson said.
``We'll hold a stake until it is certain that the bank is
in a good position and until somebody who we trust can come in
and buy the bank,'' Herbertsson said. ``If it's one month, then
it's one month. If it's two years, then it's two years.''
In the 24 hours after the collapse of Glitnir, Standard &
Poor's and Fitch Ratings lowered the country's rating and
Moody's Investors Service put Iceland's national Aa1 rating on
review for a potential downgrade.
``The economic situation has in a short space of time
changed very much for the worse,'' Prime Minister Geir H. Haarde
said in a speech to parliament last night. ``Government,
companies, households and people have seldom faced such great
difficulties.''

Waiting

Iceland's central bank has done little to ease the
liquidity shortage, even as central banks across the rest of
Europe and in the U.S. pump money into their financial system
and help their banks.
``Everybody is basically waiting for the central bank to do
something,'' said Beat Siegenthaler, a senior strategist at TD
Securities in London. ``They're the only central bank around the
world that hasn't stepped in, in some way, to support their
financial sector. At the moment the feeling is that they're just
nowhere, they're just not present''
The slump in the krona will probably send the inflation
rate as high as 20 percent, compared with the central bank's
target of 2.5 percent, Siegenthaler said. Consumer prices rose
an annual 14 percent in September.
``Many traders are saying they've never seen a currency
lose as much in such a short time and without the central bank
saying anything or attempting any kind of supportive measures,''
he said.

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