Tuesday December 2, 05:10 PM
Iceland moves to help businesses, eyes debt deals
By Wojciech Moskwa and Omar Valdimarsson
REYKJAVIK, Dec 2 (Reuters) - Iceland's government announced debt relief and investment measures on Tuesday for its ailing business sector and signalled it was ready to settle debts with foreign creditors by offering stakes in new Icelandic banks.
The government said it was willing to offer shares in Iceland's new banks -- which were created out of the old, debt-laden ones that failed in October -- as payment for some of the banks' obligations to foreign investors.
Kaupthing, Landsbanki and Glitnir, the three top commercial banks, were taken over by the state after they collapsed under the weight of tens of billions of dollars of foreign debts.
But a government spokesman said the bank debt proposal was not yet a fully fledged plan, but rather a statement of intent.
The government will be ready to help foreign creditors exchange the debts for shares in the new banks.
'This way the creditors can become owners, and we will have a more varied banking system with international capital,' government spokesman Kristjan Kristjansson said.
Those banks form a key part of the government's plan to help a local business community that has been rocked by the crisis. The measures call for the new banks to extend loans, cancel debts and provide much-needed capital.
'Emphasis should be put on creating jobs that demand large amounts of manpower,' the government said in a statement.
Iceland is facing a deep recession with its economy seen shrinking by 10 percent next year and offshore trade in the crown currency effectively stopped. Long benign unemployment is rising quickly and interest rates are at 18 percent.
The new banks will set up holding companies to manage shares in companies whose debts were swapped into capital.
Furthermore, Iceland will establish a 'recovery fund', to invest money from 'pension funds, banks and other investors, including international ones' into Icelandic businesses.
The costs of the plan were not immediately available.
The government said companies that meet requirements will be allowed to keep their accounts in foreign currencies, a welcome if small step for businesses who have lobbied for Iceland to ditch its crown for the euro.
Iceland is not in the European Union and joining the single currency would take a number of years, which is causing some to push for unilateral euro adoption without the EU's consent.
The government -- whose top short-term policy goal is to stabilise the crown -- said it would review, in cooperation with labour and employer groups, new currency rules to 'minimize the negative side effect' of tight limits on capital flows.
Vilhjalmur Egilsson, director general of the Confederation of Employers, said: 'This is a very important step in the right direction... but still much work is needed.'
'I'm also pleased to note that the cabinet has set a clear course for dealing with international creditors and that they are welcomed as partners in Icelandic banks,' he added.
(Editing by Ron Askew) Keywords: ICELAND/BUSINESS XX:SU:REUTERS#SN:nL2469893#XX:779614.0#HS:RAMSTXT_9088_2008-12-2_165533_2_336#DU:lanreunxd1+lanreunxd2+lanreznxd1+lanreznxd2+rekwire+reawire+rexwire+bsu7rtr+bsu8rtr#XN:##XP:tfukfipdistw.datastream.com ~
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