Caught in financial crisis, Iceland tries to tap Russia

[katty]

more: http://iht.com/articles/2008/10/07/business/icebank.php

Caught in financial crisis, Iceland tries to tap Russia
By Eric Pfanner and Julia Werdigier Published: October 7, 2008

REYKJAVIK: The government of Iceland on Tuesday took extraordinary measures to try to save a financial system battered by the global credit crunch, saying it had sought an emergency loan from Russia to stave off the threat of "national bankruptcy."

As the credit crunch tightened its grip on this remote island country in the North Atlantic, where a debt-fueled boom has turned to bust, the government took control of a second major bank and pegged the krona to a basket of currencies in an effort to arrest its plunge.

But most surprising was Prime Minister Geir Haarde's decision to ask Russia for a loan of €4 billion, or $5.5 billion, to help the government and the central bank keep the economy afloat.

Though the government initially said it had secured backing for the loan from Moscow, the Russian deputy finance minister, Dmitry Pankin, told the Interfax news agency that no decision had been made. Iceland later acknowledged that it had been premature, saying it had contacted the Russians but had not yet reached an agreement.

The confusion added to the sense of bewilderment here over the speed with which the financial situation has gone from bad to worse.

"We are still in the midst of events unfolding, and it's impossible to see where it's going to end up," said Bjorn Gudmondsson, head of research at Landsbanki, the second-largest bank in Iceland, after Kaupthing.