Cablegate: Icelandic Central Bank Asserts Russian Loan Is 95 Percent

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DE RUEHRK #0223 2821643
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O 081643Z OCT 08
FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3833
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 000223

SIPDIS

STATE FOR EUR/FO A/S Dan Fried

E.O. 12958: DECL: 10/07/2018
TAGS: EFIN ECON PGOV IC
SUBJECT: ICELANDIC CENTRAL BANK ASSERTS RUSSIAN LOAN IS 95 PERCENT
SURE

REF: Reykjavik 221

Classified By: DCM Neil Klopfenstein for reasons 1.4 (b) and (d).

1. (C) Sturla Palsson, Director for International Affairs and Markets
at the Icelandic Central Bank told EconOff that the 4 billion Euro
loan offered by the Russians is 95 percent certain to happen. The
Icelanders have been assured by the Russians that the unprecedented
loan will go through and that it has "been approved by the highest
level in Russia." Palsson is chairing a five person committee from
Iceland that will travel to Russia on Monday, October 13. Other
participants include two Russian speaking Icelanders (a lawyer and a
banker), a representative from the Ministry of Finance and an
Economist from the Central Bank. The team will negotiate the term
(length of loan) and discuss what documentation or format is needed
to complete the loan.

2. (C) Since the Acting Foreign Minister yesterday publicly stated
the U.S. had rebuffed Iceland's pleas for help (see reftel), the
Embassy has been working to determine with whom the Icelanders spoke
in the U.S. and supposedly approached for help in their ongoing
financial crisis. Palsson said the Central Bank had contact with the
Chairman of the New York Federal Reserve, Timothy Geithner, as well
as with additional officials from the Federal Reserve in Washington.
They have not talked since last week. Palsson confirmed that the
Central Bank had not spoken with anyone at the U.S. Treasury
Department. The Ministry of Finance's Director General of the
Economic Department, Thorsteinn Thorgeirsson, said that aside from an
October 6 conversation between Treasury Dept Under Secretary Dave
McCormack and the Finance Minister, the only other official contact
the ministry had with the US Government was with Treasury's Iceland
Desk Officer Lawrence Norton.

3. (C) Palsson said the Central Bank's Governors were talking to
their Nordic colleagues, but the Bank has not taken advantage of the
swap lines in place. He said there has been talk of loans and a
number of other possibilities with the private sector and some in the
public sector, but that it was too early to say and they had nothing
in hand. Palsson said the goal was to back up liquidity to stabilize
the currency and increase or rebuild confidence in the currency. He
said, "Iceland currently has 3 to 4 billion Euro, the Russian loan
would take us to 8 billion Euro and 10 to 15 billion Euro would be
optimal. At that point we could cover imports of goods and services
for two years."

4. (C) Palsson said the Central Bank would be very pleased to hear
from the U.S. "Having the US and the US Government as an ally in a
crisis would be hugely important for confidence." Palsson said that
in his capacity as Head of the International Affairs and his role as
coordinator between the Icelandic parties for any foreign loans, he
would be the primary contact point for outreach from the U.S.

VAN VOORST

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