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Cablegate: Icelandic Central Bank Asserts Russian Loan Is 95 Percent

VZCZCXRO1452
OO RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHRK #0224 2821650
ZNY CCCCC ZZH
O 081650Z OCT 08
FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3834
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 000224

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.


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