Iceland's IMF bail-out frozen while fate of Icesave savings accounts is decided

24 October 2008 / by Rachael Stiles
Iceland's stricken economy is not going to be bailed out by the International Monetary Fund until its dispute with the British Government over the fate of its UK savings deposits has been resolved.

The IMF is set to give Iceland a $6billion rescue package, but at the moment there is a freeze on negotiations until Iceland and Britain have come to an agreement on the deposits of UK savers which are locked in Icesave, the UK savings arm of the collapsed Icelandic bank Landsbanki.

Gordon Brown moved to freeze Icelandic assets in the UK when the Icelandic Prime Minister, Geir Haarde, said that UK savers would not be compensated, forcing the UK Government to guarantee all British Icesave savings accounts to dampen the panic which was ensuing among savers.

Negotiations are currently said to be revolving around a possible £3billion loan which Iceland says it needs from the UK in order to repay its Icesave savings account customers.

According to reports from the Financial Times, the Treasury has already agreed to lend Iceland £3billion to repay its 300,000 UK depositors which have an estimated £4billion locked in Icesave accounts, but the two governments have so far been unable to come to an agreement.

Gordon Brown angered the Icelandic prime minister when he implemented anti-terror legislation to freeze Landsbanki's assets in the UK, which is being blamed for delaying the agreement.

Iceland is responsible for paying the first €20,887 of any compensation, with the UK's Financial Services Compensation Scheme (FSCS) protecting the rest up to the £50,000 limit; the Government has guaranteed anything over that amount in the case of Icesave, which is estimated to cost the taxpayer as much as £2.4billion.

It was hoped that an agreement would have been reached by now, so that Iceland could receive the help it badly needs from the IMF to shore up the problems in its economy, but talks fell apart last night, according to the Guardian.

"The IMF would like to see those matters solved before any further steps are taken", Mr Haarde told Iceland's national radio this week.

A Treasury spokesperson said that the UK Government "continues to work constructively towards a resolution with the Icelandic Government and looks forward to a swift solution." the Guardian reported.

© Fair Investment Company Ltd