Iceland braces for next wave of storm, mulls IMF

REYKJAVIK (Reuters) - Iceland signaled on Sunday it might turn to the International Monetary Fund for assistance to pull through a financial storm that has brought its economy to the brink of collapse.

As Icelandic officials prepared to depart for Moscow this week to begin negotiations for an emergency loan from Russia of potentially billions of euros, a top minister gave Iceland's strongest signal yet it may ask for IMF help.

An official at the country's financial watchdog said a decision would be taken on Monday on whether to reopen the stock market, which was shut at the height of last week's turmoil.

Meanwhile, the fallout from the crisis showed no sign of abating. A popular Icelandic minister on Sunday called for the dismissal of Central Bank head David Oddsson, saying there was a need to review Iceland's monetary policy.

When asked if she wanted Oddsson out, Social Affairs Minister Johanna Sigurdardottir told Icelandic television: "I think a change is necessary."

British retail billionaire Philip Green edged closer to a deal to buy the debts of Icelandic investor Baugur, a once- powerful predator that acquired a string of famous brands. Baugur UK Chairman Jon Asgeir Johannesson told Icelandic television selling the group's debts, even at "firesale prices," would be better than letting its British companies fail.

"Nothing's happened yet," Green told Reuters on Sunday.

In fellow Nordic country Norway, the financial system is also being stretched. The government and central bank introduced new measures on Sunday to help banks get cash and planned to sell more than $55 billion in government debt.

For Iceland, helping the banks with liquidity is no longer a potential remedy. Most banks are now under state control and the big question is whether to ask the IMF for foreign currency to ensure imports flow freely and to help banks trade again.

"My conclusion is that if we appeal to the IMF, other central banks and other nations would follow that track," Industry Minister Ossur Skarphedinsson told the Morgunbladid newspaper in a report published on its website on Sunday.

Skarphedinsson said that would give Iceland a chance to rebuild its foreign exchange market swiftly and would "strengthen our own currency and ensure a considerable cut in interest rates."

When the financial crisis took hold this past week, Iceland at first downplayed the idea of seeking IMF help.

Countries typically avoid going to the Fund for money, both as a point of national pride and to avoid the conditions the organization may impose on them in return for cash.

As Iceland was forced over the past week to take over one major bank after another, to close its stock market and to abandon attempts to defend its free-falling currency, Prime Minister Geir Haarde said going to the IMF was a definite possibility.

On Friday, Haarde said Iceland would not take a decision while the finance minister was in Washington for annual IMF meetings. The gathering ends on Monday.

HEADING FOR MOSCOW

An Icelandic delegation of central bank and finance ministry officials will leave for Moscow on Monday, a foreign ministry spokeswoman said. Loan talks are due to start on Tuesday.

Iceland at first said Russia would lend it 4 billion euros ($5.5 billion) only to have to row back and concede that an agreement had not been nailed down.

The idea that Iceland, a NATO member, had cut a deal with Russia led many to speculate about Moscow's motives and what price it might extract.

But a prominent member of the Independence Party, part of the ruling alliance, said on Sunday people should not read too much into whether or not Iceland struck a loan deal with Russia.

"If our friends have trouble at the same time as we are seeking assistance ... it means we have to seek other partners to work with," lawmaker Illugi Gunnarsson told Reuters.

Haarde has voiced disappointment other nations did not come to Iceland's aid, particularly in Europe.

But Iceland has a tricky relationship with the European Union. Many on the island have long wanted Iceland to move toward adopting the euro, but political leaders have been cautious as that would mean joining the European bloc.

Joining the EU could force the country's important fishing sector to make concessions and runs contrary to Icelanders' fiercely independent streak.

Iceland struck separate deals on Saturday with Britain and the Netherlands, related to thousands of savers' funds trapped in frozen Icelandic bank accounts.

But on the island, many remained stunned and confused.

"Of course it is a shock for people who have lost their jobs and possibly their homes ... and we haven't heard the last from the banks," said Bara Kristinsdottir, a 48-year-old woman working in a central Reykjavik bookshop.