Iceland Premier Says $6 Billion Loan Deal to Be Ready This Week

By Helga Kristin Einarsdottir

Nov. 17 (Bloomberg) -- A $6 billion International Monetary Fund-led loan package to bail out Iceland's economy could be ready to sign as soon as Nov. 19 after the country reached an accord with EU countries, according to Prime Minister Geir Haarde.

Enough of the loan package's draft would be ready by that time ``in order for it to be finalized,'' Haarde said yesterday in an interview with Bloomberg.

Iceland helped clear the way for a loan deal yesterday, reaching an EU-backed accord with the U.K. and the Netherlands on repaying depositors at Icesave, the online banking unit of failed lender Landsbanki Islands hf. Under a preliminary agreement reached on Oct. 24, the IMF will provide a $2.1 billion loan, with the rest of it coming from contributing countries.

Iceland will be able to draw $830 million after the IMF-led loan is completed, Haarde said. He also said that the Nordic countries would ``play the biggest part'' in the package after the IMF. Norway has pledged 500 million euros ($635 million), the Faroe Islands 300 million kroner ($50 million) and Poland $200 million, so far.

Iceland had been told in ``no uncertain terms that nobody will take part in lending'' to the country until the Icesave dispute was finished, Haarde told reporters yesterday.

``We were not just holding talks with the U.K. and the Netherlands, but the whole of the European Union and then some, because other nations that were connected with this issue later also set the condition that Icesave would be resolved,'' Haarde said.

Deposits at Icesave may amount to as much as 5.5 billion pounds ($8.2 billion), the size of Iceland's economy, according to a report by Jon Danielsson, an economist at the London School of Economics. Gisladottir put the figures at 640 billion kronur ($3.7 billion) on Nov. 14.

The island, which had the fifth-highest per capita income in the world last year, needs the financing for imports and to create enough foreign reserves to support a free-floating currency.

The EU has agreed to facilitate financial assistance to Iceland, including agreeing on a stabilization package from the IMF, Iceland's government said in a press release late yesterday. The IMF portion of the loan is set to be completed on Nov. 19, the fund's managing director Dominique Strauss-Kahn said at a press conference in Washington yesterday.

To contact the reporter on this story: Helga Kristin Einarsdottir in Iceland at einarsdottir@bloomberg.net.