Import-dependent Iceland starts scrambling for cash

By Omar Valdimarsson

REYKJAVIK, Oct 14 (Reuters) - As Iceland scrambles to secure foreign currency, a question at the back of Icelanders' minds is how long does the country really have before its need for hard cash becomes acute.

Iceland's banks are now under state control and, with the crisis showing no letup, foreign banks are not dealing with them. Trade in the currency is frozen and the central bank has issued rules to keep foreign currency withdrawals to a minimum.

The danger: importers become unable to do business abroad and, if the situation is not addressed, the country could find itself having trouble bringing in necessary goods.

"Many wholesalers are furious," Knutur Signarsson, managing director of the Wholesalers Association, told an Icelandic newspaper.

"They're increasingly being seen abroad as unreliable partners -- they have the money but cannot get foreign currency."

Icelandic television said exporters too were complaining. Some, it said, were not receiving payments due because foreign banks were holding onto the funds in lieu of money owed them by Icelandic banks.

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.

On the other hand, no one is suggesting at this stage that Icelanders will go hungry or not be able to get basic goods.

The Icelandic central bank's reserves in convertible foreign currencies amounted to 366 billion Icelandic crowns in September. At the exchange rate prevailing at the end of the month, that was roughly worth 2.44 billion euros.

Iceland, which has been running a trade deficit for years, imported 43 billion crowns of goods in September, which means it paid 284 million euros to buy what it needed, using the same end-September exchange rate.

Based on those numbers, the central bank can supply enough foreign currency to local firms to cover imports for just under nine months. That squares with what Central Bank Governor David Oddsson said last week when he told state radio that reserves could pay for eight to nine months of imports.

PRIORITY CALLS

Currency guidelines by the central bank give priority to essential imports such as food, medicines and oil, in effect leaving importers of other goods starved of foreign currency, Icelandic media reported.

So far, however, shops in Iceland remained well-stocked, with little sign Icelanders were increasing purchases of foodstuffs and other essentials.

"We haven't seen any hoarding here," said Julia Gudjonsdottir, a 35-year-old teller at the Hagkaup supermarket.

"At a staff meeting the other day, some were saying they had heard of hoarding in other places, but no one had actually seen it."

The 400 million euros Iceland secured on Tuesday came from a facility set up with the central banks of Denmark, Norway and Sweden. Under the terms, Iceland can swap crowns for as much as 500 million euros with each central bank. It tapped Denmark and Norway for 200 million each.

Prime Minister Geir Haarde said the money would help the country get its foreign exchange market going again.

It all amplifies the need for Iceland to strike a deal with Russia, the International Monetary Fund or both.

"It's a mess," said Kent Baek Iversen, analyst at Jyske Bank. "But hopefully the IMF can help them." (Additional reporting by Niklas Pollard in Stockholm and Patrick Lannin in Reykjavik; writing by Adam Cox; Editing by Leslie Adler)