IMF loan to Iceland

The Icelandic government decided to seek assistance from the International Monetary Fund (IMF) immediately after the onset of the financial crises. Negotiations started quickly with an agreement and an economic programme finalized by October 24. However, negotiations over deposit insurance for branches of Icelandic banks abroad delayed the process of attracting needed additional financing for the programme.

On November 19th the IMF approved Iceland’s request for a two year stand-by arrangement. Iceland will receive USD 2.1 billion from the IMF. Additional loans of up to USD 3 billion have been secured from Denmark, Finland, Norway, Sweden, Russia, and Poland. The Faroe Islands have announced that they would lend Iceland USD 50 million.

The IMF stand-by arrangement is based on an economic programme outlined in a Letter of Intent. The programme was formulated by the Government and Central Bank of Iceland in close consultation with the IMF.

The programme focuses on three main areas:

• Stabilizing exchange rate and rebuild confidence in monetary policy.
• Review and revise fiscal policy with the aim of maintaining a manageable level of public sector debt and debt service in spite of lost revenues and increased expenditures.
• Banking sector restructuring and reform of the insolvency framework in accordance with transparent, internationally recognized principles.

One overarching goal: Re-establish confidence in the Icelandic economy.

In December of 2008 a delegation from the IMF was in Iceland to review economic developments, state finances, monetary policy and the restructuring of the country’s banking system. The IMF mission expressed satisfaction with the progress of events in Iceland in a statement published the IMF website.

A press release issued by the Icelandic government about the visit from the IMF mission in December states that the head of the mission, Mr Thomsen, "expresses satisfaction with the progress of events in Iceland in recent weeks. Actions by the Icelandic government concerning state finances, monetary policy and foreign exchange issues accord fully with the programme agreed upon by the national government and the IMF. Important decisions have been taken concerning the national budget, foreign exchange market and restructuring of the banking system, including the appointment of foreign experts, all of which confirm the views of the IMF mission that these decisions have brought positive results and that the Icelandic government is proceeding in the right direction."

For more information see press release from the office of the Icelandic Prime Minister:

IMF Mission to Iceland: All Government Actions Proceeding on Schedule

Another IMF mission is expected to visit Iceland in early February to carry out the first formal review of the programme set up by the IMF and the Icelandic government.

Timeline of Iceland's economic program with the IMF(pdf)