London
28 October 2008
Iceland's prime minister says his country needs about $6 billion in loans to recover from the global financial crisis, as Reykjavik's central bank hikes its interest rates by a massive six percentage points. For VOA, Tom Rivers reports from London.
The International Monetary Fund has already granted $2 billion of Iceland's $6 billion requirement and the remaining $4 billion shortfall could be bridged by loans from places like the European Central Bank and or the U.S. Federal Reserve.
And as part of the IMF financial deal, Reykjavik has agreed to boost its interest rates up to 18 percent as it battles against financial collapse.
The move is designed to stabilize the currency, and officials say they hope it can be relaxed after a short period of time.
Iceland has been struggling since it was forced to take over its three biggest banks that became caught up in the global credit crisis.
In London, British Prime Minister Gordon Brown says more countries feeling the squeeze like Iceland will be lining up for assistance from the IMF. And as he sees it, more money must be made available.
"The IMF has said it has $250 billion available and new instruments to lend to countries in crisis, but this may not be enough," said Brown. "We will consider the necessary reforms to the International Monetary Fund in the weeks ahead. But it is becoming increasingly clear to me that we cannot delay and that we now need substantial additional resources in addition to the $250 billion the IMF already has available. We need this for the crisis that we face now in the 21st century."
In European markets on Tuesday, share prices rose, breaking a five-day losing streak. The upturn came as British Petroleum announced record quarterly profits.
But many analysts warn that the fundamental weakness in the markets has not gone away. Former Bank of England advisor Danny Gabay is one of those who say that the economic pain is far from over.
"I feel that we have only got halfway through this in a sense that the financial market has had a real capitulation," he said. "It has not really hit the real economy yet. We have just begun that and when unemployment starts to rise, we night see default rates rise quite quickly on mortgages and other forms of debt and that could have quite a significant feedback loop back again to banks and the financial market. And I think that is why you are seeing share prices behaving so erratically at the moment."
Pressure here and elsewhere is growing for additional interest rate cuts to stimulate the economy and combat increasing concerns about the depth and extent of any forthcoming recession.