2nd UPDATE:Iceland Aid Could Top $10 Billion On "Prefinancing" Loan
Thursday November 20th, 2008 / 16h36
(Adds U.K. contribution details.) By Joel Sherwood Of DOW JONES NEWSWIRES STOCKHOLM -(Dow Jones)- The international aid package to Iceland could double to over $10 billion, with the U.K., Germany and the Netherlands contributing roughly an additional $5 billion to the $5.1 billion package secured Wednesday, according to a Finnish finance official. Martti Hetemaki, Finland's finance ministry undersecretary, told Dow Jones Newswires Thursday that the total aid package for Iceland would reach an estimated $10.2 billion. However, while the loans from the International Monetary Fund and the Nordic countries are aimed at supporting Iceland's tottering economy, the U.K., Dutch and German loans are intended to free up cash so that Iceland can repay the money owed to foreign depositors in the country's now-collapsed banks. Government officials from Iceland weren't available to confirm details of the aid package Thursday, but a spokesperson for the Dutch Ministry of Finance told Dow Jones Newswires Thursday that the Netherlands will lend Iceland around EUR1.3 billion ($1.63 billion), which should be used for compensating Dutch customers of the bankrupt online bank Icesave. A U.K. government source indicated that the total amount owed to U.K. depositors of the local branch of Icesave was around GBP2.2 billion ($3.3 billion) and that any "prefinancing" loan would be the "first step" in recovering that money. The U.K. treasury is already paying out to savers who were locked out of their Icesave accounts. That means the loan will enable Iceland to repay the GBP2.2 billion to the treasury straight away. In addition, Iceland would have to repay the loan under terms and conditions still to be agreed. "The details for Germany's financial support for Iceland have to be finalized in the coming days," German Finance Ministry spokeswoman Jeanette Schwamberger said. In a statement earlier, Germany, the Netherlands and the U.K. said they welcomed the IMF's aid package, outlined Wednesday, and Iceland's commitment to meet its obligations. "As part of the international support for Iceland, the U.K., Netherlands and Germany will work constructively in the continuing discussions with Iceland to conclude agreements on pre-financing that enables Iceland to meet its obligations towards depositors shortly," the joint statement said. Iceland Wednesday secured $5.1 billion in emergency funding to stabilize the country's shaken economy, with $2.1 billion coming from the IMF and $3 billion from Denmark, Finland, Norway, Sweden, Russia and Poland. The Faroe Islands will also lend $50 million, the Icelandic government said. Reykjavik came to an agreement over the weekend with the U.K. and Netherlands over foreign debt obligations from a collapsed private Icelandic bank. Iceland said in a statement Monday it would cover insured deposits in Landsbanki's foreign internet banking arm, Icesave, "under the understanding that prefinancing for these claims is available by respective foreign governments." It's expected that any aid from the U.K., the Netherlands and Germany will be used to pay back Icesave depositors, while the $5.1 billion from the IMF, Nordic countries, Poland and Russia will be put towards Iceland's currency reserves to support the struggling Icelandic krona. -By Joel Sherwood, Dow Jones Newswires, +46 85 45 13 092, joel.sherwood@dowjones.com (Andrea Thomas in Berlin, Ykje Vriesinga in Amsterdam and Laurence Norman in London contributed to this report.) Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=ZeJWYD76SSUIrDh7xN%2BBbg%3D%3D. You can use this link on the day this article is published and the following day.
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