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Cablegate: Iceland Embassy: Russian Loan "Strictly

VZCZCXRO2300
PP RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHMO #3010 2831426
ZNY CCCCC ZZH
P 091426Z OCT 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 0321
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHRK/AMEMBASSY REYKJAVIK PRIORITY 0051
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

C O N F I D E N T I A L MOSCOW 003010

SIPDIS

STATE FOR EUR/RUS, EUR/NB, EEB/IFD
TREASURY FOR TORGERSON, NORTON
NSC FOR ELLISON

E.O. 12958: DECL: 10/01/2018
TAGS: EFIN ECON PREL RS IC
SUBJECT: ICELAND EMBASSY: RUSSIAN LOAN "STRICTLY
FINANCIAL;" CLOSE BUT NOT DONE YET

REF: REYKJAVIK 224

Classified By: Charge d'Affaires Eric Rubin, Reasons 1.4 (b/d).

1. (C) Iceland's Moscow Deputy Chief of Mission, Magnus
Hannesson, told us that the proposed loan from Russia is a
strictly financial transaction. He insisted Iceland's
economic fundamentals are sound but said the country needs
assistance providing liquidity to its banking sector.
Iceland's monetary authorities had begun soliciting support
from friends and allies last spring, but to no avail.
Hannesson explained that his government had felt it had no
choice but to consider less conventional sources of
financing, and that Russia was one of those sources. Loan
discussions with Russia's Finance Ministry and Central Bank
(CBR) began in the summer.

2. (C) Hannesson confirmed that a team of officials from
Reykjavik would arrive the week of October 13 to negotiate
the loan. Echoing Icelandic Central Bank statements to
Embassy Reykjavik (reftel), he expressed confidence that the
4 billion Euro loan agreement would be concluded very soon.
Hannesson said he would participate in the meetings between
the GOI delegation and the GOR next week and would provide us
with a readout.

-------------------------------------
No Effect on Iceland's Foreign Policy
-------------------------------------

3. (C) Hanneson emphasized that Iceland's foreign policy
would not change as a result of a loan agreement with Russia.
He reiterated the loan was strictly financial and not a quid
pro quo. Iceland was in need of funds; Russian officials had
determined that Iceland was an acceptable risk. The GOI
would be grateful to Russia but would not provide access to
military installations or change its stance on any issue in
exchange for the loan.

-------
Comment
-------

4. (C) The Russian loan to Iceland strikes us yet another in
a proliferating series of GOR "vanity" projects that Russia
may no longer be able to afford. The financial crisis has
hit Russia hard and the Russian economy is starting to feel
the effects. The loan to Iceland suggests that the GOR has
still not come to terms with this, nor with the country's
rapid fall from economic grace. End Comment.
RUBIN

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