Iceland said Tuesday that western allies had failed to provide support to help ease the country’s financial crisis, forcing it to turn to Russia for a €4bn ($5.4bn) loan. Geir Haarde, Iceland’s prime minister, said the Russian deal did not extend to military co-operation, refuting the suggestion that Moscow may gain access to a former US airbase vacated in 2006. Iceland is a founding member of the Nato alliance. There was confusion over the status of the Russian loan, with the central bank first saying it had secured €4bn on a four-year deal, at 30-50bp above Libor, before acknowledging that the pact had yet to be finalised. Iceland needs to bolster its forex reserves in order to shore up the krona, whose depreciation has caused sharp price rises in imported goods. The central bank said Tuesday it had begun intervening in currency markets to try to strengthen the krona, helping it to rise 13% against the euro at IKr150. Iceland is continuing to look abroad for other funds but, if finalised, the Russian package will almost double its foreign currency reserves.

This entry was posted by Gwen Robinson on Wednesday, October 8th, 2008 at 5:44 and is filed under Capital markets. Tagged with iceland, russia. Edit this entry.