IMF hasapproved 1 USD 2.1 billion package for Iceland. Actually, IMF has agreed to pay $2.1 billion and Iceland would need about $5 billion to keep afloat. Where did this $ 5 billion come from?
In a conference call, IMF explains the details.
QUESTIONER: In Article 24 of the Icelandic Letter of Intent, it is commented that there’s a need for $24 billion until the year 2010. Can you explain this to us? What is this amount for and how does the IMF see this?
MR. THOMSEN: Yes, I can explain that to you. The $24 billion has three components. One component is the estimated cost of paying on the foreign deposits, which when this was drawn up it was estimated at close to $8 billion. With the information we have today, we think this is a significant overestimation. So probably it’s closer to $5 billion, $6 billion, something like that.
That part of the financing is already assured in the sense that the concerned countries and particularly the UK and the Dutch have agreed to provide financing earmarked for the payments of these foreign deposits. So, of the $24 billion, or if we have the more recent, more realistic number of probably $21 billion or $22 billion, $5 billion to $6 billion is already secured through the commitment of the UK, Dutch and any other countries that will get payments to provide financing earmarked for this.
Secondly, there is an estimated $10 billion in arrears to private creditors. These are payments. When we calculated the $24 billion, or the corrected $21 billion or $22 billion, we assumed that all payments are being made. Now we know that these payments, this $10 billion, are not being made. So we have a counter item below the line of $10 billion of arrears that will be subject to discussions between the banks and those that are administering the banks now and the foreign creditors. That’s also, so to speak, taken care of in the financing picture.
This leaves this residual financing gap, cash financing gap of about $5 billion. It’s another way of saying, in the jargon of economists, when we do the balance of payments, we do it on an accrual basis, what is due. What is due gives you a financing need of $24 billion, that is $21 billion or $22 billion, corrected.
If we did all of this on a cash basis, the $24 billion would only be $5 billion, and that’s the $5 billion we’ve been talking about.
I realize that this way of putting it sounds somewhat strange for somebody who is not in the IMF world, but this is the way we present it. We have to present the balance of payments on an accrual basis, what is actually due, not what are the actual payments taking place.
So actually Iceland needs $21-22 billion out of which around $15 bn to $ $16 bn have been worked out. Remaining is around $ 5-6 billion out of which $ 2.1 bn comes from IMF. What happens to the rest?
QUESTIONER: How sure are you that Iceland will get those $3 billion from other countries?
MR. THOMSEN (IMF): I’m confident that we will get the $3 billion. I’m very confident.
Talks are on with other Economies (like Russia) to provide the rest.