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Emerging Markets Weekly

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Chilean inflation remains high, central bank president Jose De Gregorio said in Santiago

Mon, Oct 27 2008, 10:20 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

EMERGING MARKETS

Emerging markets are the latest asset class to feel the force of the global financial crisis, but they're not about to become part of the problem. Emerging markets aren't causing more troubles; in fact, they will prevent the global economy from contracting this year and next. They certainly won't be turning en masse to the International Monetary Fund for bailouts. A handful may require drastic action, and some may want the comfort of an IMF standby agreement as a backstop, but most will be able to stand on their own two feet. Emerging markets are clearly vulnerable to the fallout from the financial crisis. Some companies in emerging markets relied on cheap overseas credit, and are suffering now that has been shut off. It has coincided with the slump in commodities, which has brought some over-enthusiastic bets down to earth. But they aren't exposed directly to losses from toxic assets such as U.S. structured finance. Governments would do well to stick by the responsible policies they've put in place, but some may fall down. As Standard and Poor's warned recently, the five-year run of improving creditworthiness across the asset class may well have peaked - but that doesn't mean it's going to slump. More of a plateau, said S&P. Yes, growth is slowing in emerging markets, but it's still far stronger than in the developed world. A small decline in growth rates would be a healthy withdrawal from blistering and highly inflationary levels. China's gross domestic product growth slipping from 12% closer to 9% is very welcome. The growth emphasis is also shifting from export-driven to domestic demand. The Institute of International Finance, which represents the world's banks, said this week that it expects GDP growth in emerging markets to reach 6.3% this year and 5.2% next year. That will be enough to offset the slowdown in developed economies, and the IIF sees that propping global growth up to the tune of 2.2% in 2008 and 1.4% in 2009. Two of the countries that have made most progress in reducing their vulnerabilities have put them front and center in the current selloff. Brazil and South Korea both have floating exchange rates as well as broad and deep capital markets, and have performed exceptionally well in recent years. As global investors hoarding cash look across their portfolios for something to sell, these two are natural candidates. The Brazilian real has lost nearly 31% against the dollar since July, and is currently trading at a three-year weak point of around BRL2.30. The South Korean won has lost 35% against the dollar, and is trading at levels not seen since its own previous crisis in 1997, at KRW1,400. Governments in both countries have taken steps to help those companies and banks that have been caught out by the global dash for dollars. But their economies are both fundamentally strong, and each has more than $200 billion in foreign reserves. Those won't be exhausted unless the financial crisis maintains its ferocity for months, possibly years. There are some notable exceptions, primarily in Central and Eastern Europe which have large current account deficits and are dependent on overseas financing. Most of these will be able to turn to the IMF, which has more than $250 billion on tap to disburse. The initial list of potential IMF supplicants includes Turkey, Hungary, Pakistan and Iceland, which together will require, if maximum historical borrowing levels are maintained, about $97.5 billion, according to an estimate by TD Securities. That means there's still plenty of space for the IMF to help without resorting to other measures, such as tapping a credit line offered by Japan from its $1 trillion of reserves. Then there are the basket cases, such as Argentina, which has opted to expropriate funds from the private pension system to relieve its funding pressures instead of turning to the IMF. It has had a poisonous relationship with the institution since its mammoth sovereign default of late 2001. Specialist emerging markets investors have long discounted Argentina as a reliable proposition. Most emerging markets must prove their mettle in the current environment. Responsible policies and canny uses of foreign exchange reserves will see them through. Fortunately, they won't be contributing to the problems this time round. And once the crisis clears, they will be much better placed for recovery than much of the developed world.

LATIN AMERICA

Argentina

Argentina's bonds and stocks plunged for a second day as a planned government takeover of $29 billion of pension funds stoked concern the South American country is headed for its second default this decade. President Cristina Fernandez de Kirchner's bid to seize the private funds is undermining investor confidence that was already faltering as prices on the country's commodity exports tumbled and a five-year-old economic expansion began to sputter. The last time the government sought to tap workers' savings to help finance debt payments was in 2001, just before it halted payments on $95 billion of bonds. ``It's the final of many nails in the coffin from an institutional investor perspective,'' Bill Rudman, who helps manage $3 billion of emerging-market equity at WestLB Mellon Asset Management in London.

Chile

Chilean inflation remains high, central bank president Jose De Gregorio said in Santiago. The country's banking system is ``solid'' and interbank lending has ``normalized,'' De Gregorio added.

Colombia

Colombia's central bank kept interest rates unchanged in a bid to head off a resurgence of inflation running near the fastest pace since 2001. The bank's seven-member board, led by chief Jose Dario Uribe, held the interbank rate at a seven-year high of 10 percent, meeting the forecasts of 33 of 36 economists surveyed by Bloomberg.

Jamaica

Standard & Poor's said on Tuesday it is likely to downgrade Jamaica's credit ratings if external pressures and an expected economic downturn add to the country's fragile fiscal position. S&P revised the outlook on Jamaica's "B" sovereign credit ratings to negative from stable, warning that deteriorating global financial conditions are making it more difficult for the government to meet its external funding needs, despite high primary fiscal surpluses. "Our negative outlook reflects a likely downgrade if external pressures add to fiscal uncertainty, raise capital outflows, or significantly impair external liquidity," the ratings agency said in a statement. It also warned against the risk of deterioration in Jamaican banks' asset quality, which could further weaken the financial sector's ability to finance the government's large borrowing requirements. Jamaica's foreign reserves fell to $2 billion from $2.3 billion in the past 30 days, S&P said, as the Bank of Jamaica intervened in the foreign exchange market to support the currency, which still depreciated by 2.8 percent during the period.

Peru

Peru's exports rose 4.2 percent in September from a year earlier on rising sales of gold and agricultural commodities. Exports climbed to $2.66 billion in September, the government's export promotion agency, Promperu, said in an e- mailed statement. Gold rose 17 percent to $457 million, while coffee almost doubled to $102 million and chemicals rose by a half to $103 million.

AFRICA & MIDDLE EAST

Poor African countries should be invited to an international summit on the global financial crisis next month, Benin's president said at the weekend. Finance ministers and central bankers from the G20 group of industrialised and developing countries plan to meet in Brazil on Nov. 7-9 to discuss reforming global financial regulation. South Africa, the biggest economy on the poorest continent, is the only African member of the group. "While we welcome this initiative to include Africa, we see that it excludes the poorest countries which are victims of the current system," Benin's President Thomas Boni Yayi told an African governance meeting on Saturday in the main city Cotonou. "Europe is coordinating; Europe and Asia are coordinating, but Africa is not coordinating. It is not even consulted," said Yayi, whose comments were broadcast on Sunday by Radio France International.

Egypt

Egypt's economy will grow six percent next year, Minister of Finance Youssef Boutros-Ghali said. ``When we slow down, we will be somewhere around six' percent”, he told reporters in Cairo. The budget deficit is expected to remain at 6.9 percent of gross domestic product despite continued government spending, Boutros-Ghali said. The economy grew 7.2 percent last year.

Nigeria

Inflation in Nigeria, sub-Saharan Africa's second-biggest economy, accelerated to 13 percent in September as food and energy costs increased. The inflation rate rose from 12.4 percent in August, the Nigerian Bureau of Statistics in the capital, Abuja, said in a statement on its Web site. The pick-up in inflation was caused ``mainly by an increase in the price of some staple food items, diesel, kerosene, gas, some building materials and household goods,'' the agency said.

South Africa

Jacob Zuma, the president of South Africa's ruling party, said the central bank will remain independent after a new administration takes control of the government next year. The government's finances are in ``good shape,'' though the ``efficiency'' of state spending must improve, Zuma said in a speech in Washington yesterday, according to an e-mailed copy. It was ``prudent'' not to make any ``dramatic'' changes in further easing exchange controls in an environment of global financial crisis, he added. Zuma said there was ``no political crisis'' in the country, even after some senior members of the African National Congress said they plan to form a breakaway faction.

ASIA

China

China's economy, the biggest contributor to global growth, expanded at the slowest pace in five years as the financial crisis cut demand for exports. Gross domestic product rose 9 percent in the third quarter from a year earlier, the statistics bureau said in Beijing. That was less than any of the 12 estimates in a Bloomberg News survey and the 10.1 percent gain in the previous three months. The fifth quarter of slowing growth may exacerbate declines this year in iron ore, copper and oil prices and undermine demand for exports within Asia, where economies are already contracting.
Agricultural Bank of China will get $19 billion from the government, paving the way for the lender to sell shares to the public and capping a decade-long bailout of the nation's banking industry. Central Huijin Investment Co., a unit of China's sovereign wealth fund, will inject the cash and take a 50 percent stake, Agricultural Bank Vice President Pan Gongsheng said at a press conference in Beijing. China's finance ministry will hold the rest, he said. ``This culminates years and hundreds of billions of dollars of backstopping of China's banking industry,'' said David Liao, who helps manage $975 million at HSBC Jintrust Fund Management Co. in Shanghai. ``From now on, Chinese banks are supposed to walk on their own and the current economic downturn gives them the opportunity to prove themselves in terms of risk management and internal controls.'' The bailout will complete a reorganization of China's banking industry that's so far cost the government $500 billion, after years of statedirected lending caused bad debts to balloon. Unlike competitors such as Industrial & Commercial Bank of China Ltd., which sold stock when growth was booming, Agricultural Bank's overhaul comes as the global credit crunch saps demand for China's exports and equity offerings.

India

India's central bank unexpectedly lowered its key repurchase rate for the first time since 2004 as the global creditmarket turmoil threatens to plunge the world economy into recession. The Reserve Bank of India cut its overnight lending rate to 8 percent from 9 percent, according to a statement in Mumbai. The action came after the bank reduced the cash reserve ratio by 2.5 percentage points to 6.5 percent effective Oct. 11.

Pakistan

Pakistan has not asked the International Monetary Fund for financing but current talks with the authorities will enable the fund to respond swiftly should they do so, an IMF spokesman said on Friday. IMF spokesman Masood Ahmed, who from Nov. 1 will head the IMF's Middle East Department, said talks between the fund and Pakistani officials, now being held in Dubai, involve technical issues. "These discussions should enable the Fund to respond quickly if and when the Pakistani authorities make a formal request for financial support from the IMF," Ahmed said.

Philippines

The Philippine central bank will consider more measures to boost liquidity in the financial markets as stocks and the currency slump. ``We continue to consider other measures to further improve the distribution of peso and dollar liquidity even as, overall, there is sufficient liquidity in the system,'' Governor Amando Tetangco said in an e-mail.

South Korea

Moody's Investors Service commented on the proposed measures announced by the Korean government on October 19, 2008 to stabilize its financial markets. Noteworthy for the Korean banks are two of the measures, discussed in greater detail below, designed to restore confidence in the banking system, as well as place the banks on equal footing for overseas funding vis-a-vis other major banking systems that have received government support. Details of the plan are being finalized by the government. In the rating agency's view, the measures will help ease pressure for the domestic banks' foreign currency funding. Since the beginning of the year, Moody's had been concerned about the banks' continued tight liquidity positions, particularly in foreign currency, against the back-drop of worsening global liquidity conditions. Foreign currency funding represents about 12% of funding for the Korean banks. However, the adequacy of the USD130 billion package is difficult to assess given the current state of the financial markets and the uncertainty of how protracted the weakness becomes. The rating agency is not changing bank ratings following the government's announcement. However, the government's actions underpin Moody's assessment that systemic support in Korea is very high. Moreover, Moody's believes that the government will provide further support to the banking system, if necessary, and assuming its resources permit.
The Bank of Korea slashed interest rates by a record at an emergency board meeting in an attempt to bolster markets as the nation faces its biggest crisis since requiring an International Monetary Fund bailout 10 years ago. Governor Lee Seong Tae cut the seven-day repurchase rate 75 basis points to 4.25 percent, the central bank said in a statement in Seoul. The bank also broadened the type of bonds it will accept as collateral in money-market operations giving lenders access to more funds. The Kospi stock index slumped on concern the rate cut won't prevent the economy from slowing and could add more pressure on the weakening won. President Lee Myung Bak, who met Finance Minister Kang Man Soo and the central bank's Lee yesterday, said the country is far from experiencing a repeat of the 1997 financial crisis when it needed a $57 billion loan from the IMF.

EMERGING EUROPE & CIS

Central European governments are finally waking up to the value of the euro as an insurance against hard times after investors dumped their currencies and credit dried up in the last month. Polish Prime Minister Donald Tusk stated just that on Thursday, saying Poland would be more immune to global financial turmoil if it had been in the euro zone. That might seem obvious, but such arguments have been few and far between in what was until now a muted public debate about the single currency across the former communist region. "The financial crisis seems to have lifted support for eurozone membership among several EU countries that are still outside," the London-based Centre for European Reform (CER) said in their latest paper on the impact of the crisis on the EU. Since joining the EU in 2004, the Poles and Czechs have done little to pursue euro zone membership, lulled by improved growth, appreciation of their currencies and sinking costs of borrowing on world markets. Taking growth and easy access to cash for granted, central Europeans assumed their risk profile was permanently raised above emerging market status, reducing the incentive to adopt the euro quickly. Hence original plans to adopt the single currency in 2008-2009 were pushed back or dropped altogether, with the exception of tiny Slovenia and Slovakia. Slovenia joined this year, while Slovakia will swap crowns for euros in January.

Belarus

Belarussian President Alexander Lukashenko, seeking extra funds to help his ex-Soviet state ride out the global financial crisis, held talks with traditional ally Russia on Saturday. A delegation from the International Monetary Fund is to arrive in Belarus on Monday to consider its request for a $2 billion loan, and Lukashenko's government has also been offered a loan for the same sum over two years from Russia. The Kremlin said in a statement Lukashenko held talks with Russian President Dmitry Medvedev at an official residence outside Moscow which touched on the global financial crisis. It gave no details of any agreement. Market analysts say Belarus has a total debt of $14 billion. It also faces the prospect of a sharp hike in the amount it pays for imports of Russian gas in 2009.

Bulgaria

Standard & Poor's placed Bulgaria's foreign and local currency sovereign debt on CreditWatch negative on Thursday on concerns over its ability to finance its large current account deficit. "Bulgaria's economy had been overheating when it entered the current period of credit market turmoil, and it now faces the risk of an abrupt decline in external financing," S&P said in a statement. It added that a decision on the emerging economy's credit rating of "BBB+/A-2" on foreign and local currency debt was likely this month, depending on Sofia's policy response to "intensifying pressures resulting from external imbalances." Bulgaria's fast-growing economy depends heavily on foreign cash to finance bloated imports that fuel consumption and modernisation efforts. However, S&P said, foreign direct investment, which in 2007 fully covered the current account deficit, is declining as the property and construction sectors suffer. A senior Bulgarian government official said on Wednesday FDI will drop by at least 23 percent to 4-5 billion euros from 6.5 billion in 2007 due to the global financial crisis. Meanwhile Bulgaria's current account deficit reached 14 percent of gross domestic product in the eight months to August, and analysts say the external shortfall could rise to as much as 21 percent this year.

Hungary

Hungary has reached agreement with the International Monetary Fund and the European Union on a broad economic rescue package, including substantial financing, steadying its battered currency on Monday. The IMF said late on Sunday the deal was expected to be finalised in the next few days, and the package would help to bolster the Hungarian economy's near-term stability as it tries to stave off the impact of the global financial crisis.

Hungary needs the IMF help to restore investors' confidence in its currency and bonds, after its financial markets plunged in the past weeks as foreign investors dumped Hungarian assets on worries over the country's banking system and the financing of its large external debt. The IMF did not release the size of the financing package but analysts said it should be over $10 billion based on the IMF's agreement in principle with the Ukraine to a $16.5 billion standby loan, also announced on Sunday. With the highest interest rate in the European Union at 11.50 percent after a 300 basis point emergency rate hike last week, Hungary relies heavily on foreign capital inflows to finance its debt and deficits. "The policies Hungary envisages justify an exceptional level of access to Fund resources," IMF Managing Director Dominique Strauss-Kahn said in a statement. "Participants will include the IMF, the EU, and some individual European governments, together with regional and other multilateral institutions," he added.

Kazakhstan

The Kazakh government may invest $5 billion of its energy windfall next year in bonds issued by commercial banks to ease a refinancing squeeze, the central bank chairman said. The government may also purchase bonds issued by the National Wellbeing Fund, Anvar Saidenov told reporters in the financial capital Almaty. A decision on the bond purchases should be made next week when a government plan to boost Kazakhstan's economy will be approved. Saidenov said lenders in the former Soviet republic may have difficulty refinancing about $12 billion in debt that comes due in the next year amid the global credit crunch.

Poland

The Polish government plans soon to introduce more measures to help its banks weather the global financial crisis, including state guarantees and loans, according to the draft of a bill seen by Reuters on Sunday. If approved by parliament and signed by President Lech Kaczynski, the new law would allow Poland's centre-right government to guarantee commercial banks' loans from the central bank and other lenders on the interbank markets. Poland would also be able to lend cash and state securities to banks, the draft prepared by the finance ministry showed. It has asked the cabinet, which holds its weekly meeting on Tuesday, to consider the document as soon as possible. "The law would allow the specified measures to be taken only in a situation where financial institutions face the danger of losing liquidity," the draft states. Polish lenders have been hurt in recent weeks by concerns over their ability to obtain foreign currency through interbank markets and worries about the fate of their foreign parents.

Romania

Romania's economy will continue to grow robustly in the next few years, the national forecast commission said in its latest report released on Monday. Following is a table of macroeconomic forecasts for 2008-2010, compared with data from 2007.

Russia

U.S. Assistant Secretary of State Daniel Fried said Russia has failed to meet its obligations under a European Union-brokered cease-fire that ended a five-day war with Georgia in August. ``The cease-fire accord negotiated by Sarkozy requires Russian armed forces to withdraw to their positions before the outbreak of hostilities,'' Fried told reporters in the Georgian capital Tbilisi. ``The Russians haven't done so. They're in compliance with some of it,'' he said, referring to the cease-fire.
Ratings agency Fitch fears Russia's hundreds of smaller banks could see more failures and ratings downgrades, it said on Tuesday, saying support from states and parent institutions was key to stability in emerging banks. The Baltic states, Russia, Ukraine and Kazakhstan were the most exposed regional economies to growing banking problems, Fitch managing director for financial institutions Mark Young told Reuters, with South Africa, Turkey and the Gulf most secure. "In Russia, the government has already put a lot of money into the banking sector and we expect that to continue," Young said, adding that some negative ratings actions had already been taken on key Russian banks. "The ratings of the state banks reflect government support otherwise they would be lower. Fitch has greater concerns about the lower tier banks were more downgrades and failures are possible." Out of Russia's estimated 1,200 banks, he said roughly 1,000 were "very small and weak in terms of their franchise and often suffer liquidity problems in times of stress." There had already been several banking failures, he said, as well as deposit runs sparked by dubious rumours.
Russian companies may default on almost a third of local-currency bonds as soaring borrowing costs make it ``impossible'' to refinance the debt, according to the Bank of Moscow. A third of ruble debt is ``under severe distressed risk,'' Denis Gaevski, head of capital markets at Bank of Moscow, the third-biggest arranger of ruble bonds this year, said in an interview in London.
Three months after Russia was considered a serious contender for an A-level credit rating on its sovereign debt, ratings agency Standard & Poor's Corp. dashed those hopes by revising its ratings outlook on Thursday, a move that could also increase capital outflows from Russia, which is suffering its worst financial crisis in a decade. S&P revised its outlook to negative from stable on Russia's long-term debt, citing threats from increasingly expensive government efforts to rescue the country's battered financial markets. The agency affirmed the BBB+ long-term foreign currency and the A- long-term local currency ratings, but warned this might change.

Turkey

Turkish bond prices, stocks and the lira fell on Monday on concerns over the global economic outlook, exacerbated by fears over Turkey's economic stability given Ankara's reluctance to sign a new deal with the IMF. Investor caution drove the yield on Turkey's June 23, 2010 benchmark bond to a new four-year high at 24.66 percent while the Turkish lira traded 1.5 percent lower against the dollar at 1.7130, continuing last week's slide. The currency closed at 1.6880 on Friday. Global risk aversion and recession fears continue to batter Turkish assets, but more specific concerns over the adequacy of the Turkish government's reaction to the crisis are increasingly coming to the fore. Many in Turkey's business community are pressing Ankara to sign a precautionary standby loan deal with the IMF to restore confidence in the country. Turkey's last IMF programme with the fund, a $10 billion standby deal, expired in May. However the government appears to remain reluctant to bring the IMF on board due to popular resentment towards the Washington-based institution for past measures it has imposed, although there was little evidence of such opposition now. "In such a crisis environment we cannot darken our future by bowing to the wishes of the IMF," Prime Minister Tayyip Erdogan told a regional meeting of his ruling AK Party.

Ukraine

Moody's Investors Service has downgraded the global local currency (GLC) deposit ratings and the National Scale Ratings (NSRs) of 12 Ukrainian banks. Moody's has also changed the outlook to stable from positive on the B2 long-term global foreign currency (GFC) deposit ratings of 21 Ukrainian banks. The local currency debt instruments issued by four Ukrainian banks and the foreign currency debt instruments issued by six Ukrainian have also been downgraded. "Today's rating action has been triggered by (i) the downgrade of Ukraine's local currency bank deposit ceiling to Ba1/Not Prime from Baa1/Prime-2, and by (ii) the change of the outlook on Ukraine's B2 foreign currency bank deposit ceiling to stable from positive," says Yaroslav Sovgyra, Vice President -- Senior Credit Officer in Moody's Moscow-based Financial Institutions Group.
Credit ratings agency Standard & Poor's cut Ukraine's long-term foreign currency rating to B from B+ and said on Friday the outlook was negative, citing the cost of bailing out the banking sector. Ukraine is one of several emerging market nations to have sought assistance from the International Monetary Fund as global lending grinds to a halt. Government officials have said up to $14 billion could be provided. The hryvnia currency has taken a battering, losing almost 20 percent of its value in the past week despite constant central bank intervention through sales of its dollar reserves. Analysts also worry that banks will have difficulty refinancing their debt."The downgrade reflects the rising cost to the government of a necessary recapitalisation of the banking sector against a backdrop of declining growth and heightened exchange rate risk," S&P credit analyst Frank Gill said in a client note.
The International Monetary Fund and Ukraine said on Sunday they had reached an agreement in principle for a $16.5 billion loan package to ease the effects of the global financial crisis. But analysts said politicians would have to set aside differences to adopt a set of financial measures needed to clinch the deal and secure the loan. The former Soviet republic is in the throes of the latest bout of political turmoil that has gripped it since the 2004 "Orange Revolution". With Ukraine facing its third parliamentary election in as many years, the hryvnia currency has slumped to a record low. Analysts are concerned over the ability of the government, firms and banks to refinance with global lending at a standstill. The economy is expected to slow dramatically as prices fall for steel, Ukraine's major export, and energy costs climb. Foreign investment is also expected to drop, compounding the pressure on the currency by a current account gap. "The IMF is moving expeditiously to help Ukraine, and this programme is focused on the essential upfront measures needed to maintain confidence and economic and financial stability," IMF chief Dominique Strauss-Kahn said in a statement. Analysts welcomed the deal and said the $16.5 billion to be made available over two years was adequate, but only for now. "In terms of the figure, it's on the higher side of what was mentioned by key politicians in Ukraine. However, this is not such a big fund that it will solve all the problems in one swoop," said Martin Blum, head of EEMEA Economics and Strategy at UniCredit bank. Ukraine can use the funds to bolster the central bank's reserves -- which it is now spending to stop the currency from sliding further -- and to prop up the banking sector. Analysts said they did not expect news of the IMF loan to help Ukraine's fledgling stock market which has fallen 60 percent since the start of September when investors rushed from emerging markets. Bonds may do better, they said.

INDUSTRIAL COUNTRIES

Iceland

More than any of its Nordic neighbors, Iceland's Prime Minister Geir Haarde imbibed the economic policies of Margaret Thatcher and Ronald Reagan -- state-asset sales, light regulation and corporate growth abroad through debt. Now that the hangover has arrived, many of Haarde's countrymen want his Independence Party-led coalition to pay the price for turning one of the world's wealthiest countries per capita into a beggar state staving off depression. ``Many find that the government has mishandled the situation,'' said Thorvaldur Gylfason, a professor of economics at the University of Iceland and a former International Monetary Fund economist. ``A major political realignment will take place at the next election,'' which must be held by May 2011. That's not soon enough for many of Iceland's 320,000 citizens, as may become clear when the first opinion poll since the country's three biggest banks collapsed into receivership this month is released on Nov. 1.
Iceland needs $4 billion more in funding to help stabilise its ailing economy, its prime minister was quoted as saying on Monday. "It's hard to give an exact figure, but the situation would be good if we would get $4 billion more," Geir Haarde was quoted as saying in Finland's largest daily Helsingin Sanomat. Crisis-struck Iceland called on the International Monetary Fund for $2 billion in aid on Friday to help fix a broken banking system, restart currency trading and soften the blow from a withering economic downturn. The Washington-based lender said its staff in Reykjavik and Icelandic authorites had reached agreement on an economic programme that would be supported by the financial assistance. The deal still needs to be approved by the IMF board and Haarde said on Friday he expected it would take about 10 days for the review to take place.

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Published on  Mon, Oct 27 2008, 11:05 GMT