Sun, Oct 26, 2008 - Page 11 News List

Iceland requests US$2 billion in loans from IMF

FUNDING If approved, Iceland would become the first Western country to receive such support since Britain in 1976. Payment is due from 2012 to 2015

AFP , REYKJAVIK

Iceland asked the IMF to help it overcome a crippling banking crisis with a loan of US$2 billion, its government said on Friday.

“The Icelandic Government has reached an agreement ... with a mission from the International Monetary Fund on a comprehensive stabilization program,” a government statement said.

“The mission will now return to Washington to get approval of this program from the IMF management. We are confident that the IMF management will support the program and submit it for approval by the IMF executive board as soon as possible,” the statement said.

The IMF confirmed the agreement and put the exact figure at US$2.1 billion. Under the terms of the agreement Iceland would be able to draw US$830 million immediately after board approval.

PACKAGE

The head of the IMF mission here, Paul Thomsen, told reporters that Iceland could get a further US$4 billion from other countries as part of a package spread over two years which would therefore total US$6 billion.

He did not name the countries. A source close to the matter said that a US delegation had arrived in Iceland and a Norwegian delegation had recently left.

With backing from the board, Iceland would become the first Western country to receive such IMF support since Britain in 1976. The IMF was set up in the wake of World War II, with aims that included lending to countries in trouble.

“This program will enable us to secure funding and gain access to the necessary technical expertise required to stabilize the Icelandic krona and to provide support for the development of a healthier financial system,” Icelandic Prime Minister Geir Haarde said.

“As a result, Iceland will commit to a sustainable long-term economic policy and a plan for the recovery of the Icelandic economy,” Haarde said.

He said Iceland would be required to repay the IMF between 2012 and 2015.

CONFIDENCE

In Washington, IMF managing director Dominique Strauss-Kahn said the tentative agreement “aims to restore confidence” in the nation’s banking sector.

“Iceland has put together an ambitious economic program, which aims to restore confidence to the banking system,” Strauss-Kahn said in a statement.

It also aims to “stabilize the krona through strong macroeconomic policies and to help the country achieve medium-term fiscal consolidation following the collapse of its banking system,” he said.

“I believe these strong policies justify the high level of access to Fund resources ... and deserve the support of the international community,” he said.

Iceland’s once-booming financial sector has in recent weeks collapsed under the weight of the global financial crisis, with the government forced to take over the major banks for lack of liquidity as its krona nose-dived. The currency has lost more than half of its value since January.

Thomsen estimated that its economy would contract by a massive 10 percent next year.

Iceland nationalized its three biggest banks — Kaupthing, Landsbanki and Glitnir — following the collapse, which stemmed from a US mortgage crisis and the failure of major US financial institutions.

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