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Ministry of Finance and Economic Affairs

Joint press release from the Polish and Icelandic Ministries of Finance

Press release No. 68/2009

Today in Istanbul, Turkey, a loan agreement was signed between the Republic of Poland and the Republic of Iceland. Under the agreement, the Republic of Poland will lend the Republic of Iceland 630 million Polish z³oty (PLN), the approximate equivalent of 200 million US dollars (USD).

The agreement was signed by Jan Vincent-Rostowski, Minister of Finance, on behalf of the Republic of Poland, and Steingrímur J. Sigfússon, Minister of Finance, on behalf of the Republic of Iceland.

The loan will buttress Iceland‘s liquid foreign exchange asset position and serve as a supplement to the USD 2.1 billion loan granted by the International Monetary Fund (IMF) in support of Iceland‘s economic stabilisation and reform programme, which was adopted in co-operation with the IMF to restore balance to the Icelandic economy following the financial crisis of 2008. With the new loan, the Republic of Poland is making a contribution to international crisis management.

The loan‘s overall maturity of 12 years, with a grace period of five years, provides Iceland with long-term financing and reflects the lender‘s solidarity and its commitment to assisting Iceland in its current financial and economic difficulties.

The loan will be disbursed in three equal tranches tied to the second, third and fourth reviews of Iceland‘s IMF programme, with the payment of each tranche conditional on the approval of the respective review. The loan will be denominated and disbursed in Polish z³oty (PLN). Parallel to the disbursement of the loan, the Polish Ministry of Finance will issue Polish Treasury Bonds in four selected series with a value equal to the amount of the loan to be disbursed. The borrower undertakes to use the funds disbursed to purchase the selected Polish Treasury Bonds issued in accordance with the loan agreement. The pattern of the borrower‘s payments under the loan agreement will match the payment of interest and repayment of principal of the selected Treasury Bonds. Consequently, the net cost to the borrower will consist only of an interest margin to be paid simultaneously with interest payments on the Polish Treasury Bonds. This interest margin will be 2% per annum until 31 December 2015 and 1.3% per annum thereafter. The loan will be repaid in four instalments coinciding with the maturity dates of the selected Polish Treasury Bonds, in October 2015, 2017 and 2019, and in September 2022.

Holdings of Polish Treasury Bonds under the loan agreement will provide liquid foreign assets that complement Iceland‘s international reserves. Because the amount of the loan will be invested in selected, PLN-denominated, Polish Treasury Bonds, matching the repayment and interest payment pattern of the loan, both interest rate risk and currency risk will be eliminated.

Ministry of Finance, October 4 2009



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