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Iceland asks for 2 bln dollars' help from IMF: govt
2008-10-24
REYKJAVIK (AFP) - Iceland's government said Friday it had requested two billion dollars (1.58 billion euros) from the International Monetary Fund to help it overcome a crippling banking crisis. "The Icelandic Government has reached an agreement... with a mission from the International Monetary Fund (IMF) on a comprehensive stabilisation program" worth two billion dollars, 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." Under terms of the agreement Iceland would be able to draw 830 million dollars immediately after board approval. The head of the IMF mission here, Paul Thomsen, told reporters that Iceland could get a further four billion dollars from other countries as part of a package spread over two years which would therefore total six billion dollars. He did not name the countries. A source close to the matter told AFP 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. "This program will enable us to secure funding and gain access to the necessary technical expertise required to stabilise the Icelandic krona and to provide support for the development of a healthier financial system," 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." He said Iceland would be required to repay the IMF between 2012 and 2015. 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 added. "I believe these strong policies justify the high level of access to Fund resources... and deserve the support of the international community." 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 nosedived. The currency has lost more than half of its value since January. In an attempt to re-boot its struggling foreign trade, the island nation on the edge of the Arctic Circle has been scrambling to get hold of foreign currency. Last week, an Icelandic delegation went to Moscow to try to negotiate a loan that could be worth as much as four billion euros (5.4 billion dollars). The two sides failed to reach an agreement but negotiations are continuing. "We don't know how the economy will develop," Haarde said earlier this week. "It is clear that there will be a collapse in our national production, the state's deficit will be considerably more than we predicted (and) inflation is uncertain because that depends on how quickly the krona will strengthen."
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