AS ICELAND neared a deal on a multi-billion dollar loan from the International Monetary Fund (IMF) yesterday, the government is considering a proposal that could turn the island into a used car bazaar.
The IMF loan to prop up Iceland's distressed financial system is understood to be worth at least $6 billion (€4.57 billion) and may include contributions from Sweden, Norway and Denmark.
"It's clear from our diplomatic contacts that if and when an agreement is made between the IMF and Iceland, then our neighbours would be quite willing to sail in their wake," said industry minister Össur Skarphedinsson to Bloomberg yesterday. "We in fact have confirmation of what I would label quite generous lending facilities."
Iceland's economy has come under huge pressure in recent months, driving down the value of the krona.
The government has been forced to nationalise the country's three largest banks after they ran into difficulties with liabilities at least five times the gross national product of this north Atlantic island nation.
According to reports yesterday, the IMF is understood to be interested in contributing about $1 billion to lead a group of nations, including Nordic countries and possibly Japan.
The Morgunbladid daily added that the IMF was willing to drop the kind of strings it had attached to such loans in the past.
It is expected to charge 4 per cent interest over three years of the loan, or €178 million a year.
"It is not a traditional loan [but] it is the only loan available to Iceland at the moment," said Ólafur Ísleifsson, a former IMF board member and now lecturer at Reykjavík University, to the newspaper.
With agreement near, the government is considering how to help ordinary Icelanders who, thanks to the weak krona, face rocketing repayments on foreign currency loans.
One suggestion has been to help people rid themselves of the expensive cars which were once the must-have trophy in Iceland's boom years.
A proposed new bill, if passed by parliament, would free foreign buyers from sales tax, turning the island into a bargain basement for buyers seeking high-end cars.
Hundreds of hard-pressed owners try to offload their trophies each day in countless columns of newspaper small advertisements.
One newspaper carried an advertisement from a man offering 770,000 krona (€5,124) to anyone who would take his car off his hands and pay off the loan.
A major employer lobby group warned yesterday that Iceland's economy would shrink 10 per cent next year as the country struggles to recover from a collapse of its banking system.
"We see a downfall in gross domestic product in the range of 10 per cent," said Vilhjalmur Egilsson, head of the Confederation of Icelandic Employers (SA).
SA represents companies employing about half the salaried workforce in the country.
Mr Egilsson said GDP this year would be close to flat as an expansion earlier in the year would be offset by an expected sharp contraction in the final quarter.
Growth should resume by 2010, he added, saying there were still opportunities for new players in the market, especially in the financial sector. - (Additional reporting: Reuters)
