Thursday, October 16, 2008


Iceland had won "the best country to live in" last year, when the stock markets were booming and icelandic companies were bent on acquisition ventures around the world . But this year Iceland seems to be the first country to be in a complete mess due to credit crunch.
It started off with problems in some of the bigger banks in Iceland. You have to remember that bank assets in Iceland were unnaturally large (around nine times the annual GDP) . The banks had been operating in many other countries besides Iceland following the deregulation in the 1990's . Some of the city councils in England had lots of money invested in the Icelandic banks!! These banks were also financing a lot of deals in Britain. With liquidity drying up in the global markets , the huge icelandic banks were unable to refinance the big loans they had given out.
England went to the extent of threatening seizing some of the assets of icelandic the banks in england
The government /central bank of iceland stepped in and took control of some of the huge banks.

This led to the stock market declining by around 77% { The benchmark ICEX from around 2300 to 700 } and the icelandic currency "krona" has lost most of its value.
Icelandic officials are looking for loans from Russia to tide over the crisis and might have to make some sort of adjustments using its oil gas exploration/rights.
Iceland imports a lot of food articles and the fall of the krona is having inflationary effects.Suppliers to icelandic importers may have started to cut down on credit because the importers may find it hard to find forex. with lack of clarity on the exchange rate.

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