REYKJAVIK - The Icelandic economy was buckling yesterday as flows of money in and out of the country seized up, leaving importers struggling to pay suppliers and exporters deprived of payments.

HB Grandi, the biggest seafood company and a leading exporter, said its overseas customers' money was frozen in foreign banks at a time when the economy was desperate for foreign currency in the wake of the krona's collapse and the failure of the financial system.

"It's harming us. Our company is not getting the money to keep running," said HB Grandi marketing director Svavar Svavarsson.

Grandi represents 10 per cent of Iceland's fish industry, which creates 50 per cent of the country's export earnings.

Importers were also suffering. Many companies are unable to import goods because of the severe shortage of foreign currency. The government has prioritised medical goods, food and oil companies, but even they have problems. "We are receiving the currency for our imports but there are difficulties transferring money to our suppliers . . . The money is stopping in foreign banks and not getting to the right channels," said Eysteinn Helgasson of food company Kaupas, which runs 35 grocery stores.

Mathias Imsland, chief executive of Iceland Express, the country's second airline, said customers' credit card payments were not reaching the company's account.

"We can survive it, but this cannot go on for weeks or months," he said.

The central bank yesterday slashed interest rates from 15.5 per cent to 12 per cent, citing the "grave situation" facing the country. - ( Financial Timesservice)