Iceland can avoid shortages, needs funds-importers

REYKJAVIK Wed Oct 15, 2008 10:38am EDT

REYKJAVIK Oct 15 (Reuters) - Iceland has food stocks for about 3 to 5 weeks, but needs quickly to restore a proper foreign exchange market so importers can get back to normal business and avoid shortages, importers said on Wednesday.

Since crisis broke out on the north Atlantic island of 300,000 people, involving the government taking over the top three banks, suppliers to Iceland have cut credit to importers. Some have also demanded pre-payment for goods.

Though the central bank has said it has foreign reserves for eight to nine months of food, importers said a cash injection from abroad was the only solution to avoid shortages.

They said Iceland imported about a half of its food products, but produced its own dairy products and meat.

"The government has to get some currency in to back up the crown and build up credibility again," said Oli Johnson of the OJNK food importer, one of Iceland's biggest.

"As soon as we can show we can pay without restrictions, things will open up again," Johson said. "Hopefully they plan to solve it in the next few days."

He said Iceland on average had stocks of about 3 to 4 weeks.

The problem for importers was uncertainty about whether they would get foreign exchange, which they now have to apply for under a rationing system begun by the central bank.

"The second problem is that we do not know what the exchange rate will be," he said.

The central bank held a first auction to set the exchange rate on Wednesday and it was set at 150 crowns to the euro, versus 131 to the euro before currency trading halted last week.

Peter Thorginsson, chief operating officer of largest food importer, Olgerdin, said current food stocks would last about 4 to 5 weeks, with some supplies still coming in, he said.

He did not anticipate major shortages, but said the situation could get acute if supplies to food producers, such as bakers, were affected. "They cannot produce if they are missing one or two ingredients," he said.

On Tuesday, Iceland drew on Nordic help to get hold of 400 million euros ($546 million) and separately began talks with Russia over a possible multi-billion-euro loan.

A team from the IMF is in Reykjavik, but Prime Minister Geir Haarde said on Tuesday that it was still an open question whether Iceland would borrow money from the Fund. (Reporting by Patrick Lannin; Editing by Richard Balmforth)

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