ICELAND'S PRIME minister Geir Haarde said his country has not had direct talks on financial aid with an International Monetary Fund mission and has denied that his country is in default.

The government was working "day and night" to come up with a solution to his country's woes after its three biggest banks failed and the krona collapsed, he told journalists at a press conference in Reykjavik yesterday. Iceland would also seek to "honour its obligations" to depositors at failed Icelandic banks abroad.

The IMF has sent a mission to Reykjavik and said it was ready to lend to countries hit by the global credit crunch. Mr Haarde said an IMF team was still in the country offering advice. Iceland will also start negotiations with Russia on Tuesday for a loan of €4 billion.

Mr Haarde's comments come after British prime minister Gordon Brown said he would take legal action against Iceland's authorities if British depositors at Icelandic banks lose money.

"Everybody needs to show some flexibility here," Mr Haarde said. "Brown's remarks were unfortunate. We will honour our obligations. We may need some help from the UK authorities to do this in a proper way." Britain sent a delegation to Iceland yesterday to resolve the matter.

Iceland's financial markets ground to a halt as traders reported hardly any trades in the krona currency and money markets while its stock exchange remains shut until next week.

The government seized control this week of most of Iceland's banking system - taking over Kaupthing, Landsbanki and Glitnir - and halted trade on the stock market as the country became the most pronounced victim of the global financial crisis.

A deal to sell most of Landsbanki's overseas corporate finance and brokerage business to Iceland's Straumur-Burdaras investment bank for €380 million fell through yesterday.

(Reuters/ Bloomberg)