Ministry of Finance, Reykjavik, Iceland
Committee for Bilateral Loan Negotiations
3 July 2009
Background information on Nordic loans to Iceland
Loan agreements were signed on 1 July in Stockholm between Iceland and its four Nordic neighbours. The Nordic loan to Iceland, which will be disbursed in euros, totals 1.775 billion euros, which is equivalent to 2.5 billion US dollars or 317 billion Icelandic krónur. The loan agreements with Denmark, Finland, and Sweden are between the Icelandic Government and the governments concerned, while the agreement with Norway is between the two countries’ central banks.
The Icelandic nation deeply appreciates the support its Nordic neighbours have extended to Iceland in its battle with the financial crisis that struck the country so forcefully with the failure of its three largest banks in October 2008. The decision taken at a meeting of Nordic prime ministers in Helsinki on October 27, 2008, to establish a joint task force of senior officials whose assignment would be to prepare Nordic support measures for Iceland in collaboration with the International Monetary Fund (IMF), was of pivotal importance. On the basis of that decision, the ministers of finance of Denmark, Finland, Norway, and Sweden decided on November 19, 2008 to grant Iceland a 2.5 billion US dollar loan to supplement the economic recovery programme negotiated with the IMF for the purpose of restoring economic stability in Iceland. At the same time, the Faroese Government declared its intention to lend Iceland 300 million Danish kroner to support the recovery of the Icelandic economy. The Faroe Islands and Iceland have now finalised an agreement concerning that loan. The Nordic countries’ support is of immeasurable importance for Iceland’s recovery from the difficulties it faces.
Total amount and disbursement
The combined amount of the Nordic loans is 1.775 billion euros, or 2.5 billion US dollars. The loans will be disbursed in four equal tranches tied to the International Monetary Fund’s reviews of the Icelandic economic programme. The first review is scheduled for August, with disbursement of the first tranche of the loan package to take place thereafter.
Loan term and repayment
- The overall maturity is 12 years.
- Instalment payments of principal are deferred for the first five years, during which time interest will be paid quarterly.
- At the end of the five-year period, the principal amount will be repaid in equal quarterly instalments for the remainder of the loan period.
The loans will bear variable (floating) interest based on three-month EURIBOR rates, plus a 2.75 per cent premium.
Example: The three-month EURIBOR rate is now (3 July 2009) 1.059%; therefore, with the 2.75% premium, the loans will bear 3.809% interest based on the current EURIBOR rate.
Upon conclusion of the agreements with the Nordic countries, attempts will be made to conclude agreements with Russia and Poland on foreign-currency loans in support of Iceland’s economic programme with the IMF. Last November, these two countries indicated their willingness to lend up to 500 million dollars from Russia and 200 million dollars from Poland, respectively, for this purpose. Discussions with both countries are moving forward in good faith. The early-June agreement with the UK and Holland resolving the Icesave dispute was an important step in guaranteeing the success of the economic programme with the IMF. Bilateral agreements with all of the above-specified countries contribute significantly to the reinforcement of Iceland’s foreign exchange reserves, which is necessary in order to stabilise the króna and revitalise the economy. No less important is the fact that these measures secure positive relations with Iceland’s neighbouring countries and with the international community, which is crucial to the prosperity and well-being of the nation.