VZCZCXRO9827
OO RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHRK #0242 2941800
ZNY CCCCC ZZH
O 201800Z OCT 08
FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3854
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

C O N F I D E N T I A L REYKJAVIK 000242 
 
SIPDIS 
 
STATE FOR EUR/FO A/S Dan Fried 
 
E.O. 12958: DECL: 10/20/2018 
TAGS: EFIN ECON PGOV IC
SUBJECT: ICELANDIC ECONOMIC CRISIS: RUSSIAN LOAN STILL ON TABLE, IMF 
ANNOUNCEMENT IMMINENT 
 
Classified By: DCM Neil Klopfenstein for reasons 1.4 (b) and (d). 
 
1.(C)  Sturla Palsson, Director of International Affairs and Markets 
at the Icelandic Central Bank and leader of the recent Icelandic 
delegation to Moscow to negotiate a 4 billion Euro loan from Russia, 
told Econoff that the Russian loan was still very much on the table 
and that both sides are keeping in telephone and email contact. 
Palsson said the two sides might meet possibly this week, and thought 
that the loan could be finalized by Friday.  He said before the 
Icelandic delegation left for Moscow, they had been told by the 
Russian Ambassador to Iceland that the Russian Prime Minister had 
signed off on the loan.  The discussions in Moscow centered around 
details such as whether the money would be given as a bond or loan, 
and what the maturity dates would be, etc.  The loan would be coming 
from the Russian Development Agency.  Palsson said that Iceland is 
considering IMF assistance and that initially the Russians had been 
against Iceland involving the IMF "because of the Russians' own 
negative experience with the IMF in 1997."  However, Palsson said 
that the Russians could see the business value of involving the IMF 
because it could "bring in others" (presumably other nations with 
cash) which could create confidence in the Icelandic krona and the 
Icelandic economy. 
 
¶2. (C) Palsson emphasized that the meetings in Moscow were to inform 
Russia what Iceland planned to do with the 4 billion Euro.  He said 
that it would be used to "kick start things" and provide foreign 
liquidity.  With bigger Central Bank reserves, foreign account 
holders of Icelandic krona would be less likely to cash out.  Palsson 
acknowledged that Russia has its own financial problems, especially 
with the dropping price of oil, but said the Russian 500+ billion 
Euros in reserves would cover an Icelandic loan.  Regarding the 
question of "why ask Russia for a loan and not the U.S.", Palsson 
replied that "feelers" had been put out by the government and only 
the Russians responded positively.  Palsson said that Iceland had 
been in discussions with "others" and with sovereign wealth funds and 
that the feedback has been positive, but did not elaborate further. 
 
¶3. (C) Both the Finance Minister and Prime Minister's offices said 
that this afternoon's FT.com's article that reported Iceland's 6 
billion euro IMF agreement was imminent was unconfirmed.  The 
assistant to the Finance Minister said that the Letter of Intent with 
the IMF had not yet been signed and that final figures had not been 
confirmed.  About an hour later, however, the same assistant emailed 
Econoff to say that an announcement about the IMF would be likely 
made tomorrow. 
 
¶4. (C) Comment: Icelanders are aware that a loan from the Russians 
may have implications.  The fact that they are proceeding anyway is 
an indication of the seriousness of the financial situation here. 
 
VAN VOORST