Reykjavik - Iceland that has been severely battered by the
global credit crunch Thursday welcomed emergency loans approved by
the International Monetary Fund (IMF) and Nordic neighbours.
Nordic neighbours of the cash-strapped North Atlantic nation
earlier Thursday said they have approved a 2.5-billion-dollar loan,
supplementing a similar IMF loan.
The Nordic announcement came the day after the executive board of
the IMF approved a two-year 2.1-billion-dollar loan after a tentative
deal was clinched last month.
Reykjavik said it would use the IMF funds to support its currency,
the krona, 'which will be floated as soon as possible.'
Prime Minister Geir Haarde said the loan from the IMF was 'an
important step forward towards the rebuilding of our economy. With
the IMF agreement in place, we can commence our recovery program with
full force and bring our economy back on track.'
Iceland has also received loans from Russia, Poland and the Faroe
Islands, the government said.
The finance ministers of Denmark, Finland, Norway and Sweden said
'implementing the IMF programme will not be easy,' but they believed
it could help rebalance Iceland's economy.
The Icelandic central bank, or Sedlabanki, recently raised
interest rates to 18 per cent and has said it aims to continue to
keep tight control of monetary flows.
In Washington, the IMF said Wednesday the standby arrangement was
structured so that Iceland could immediately draw about 827 million
dollars, with the rest in eight installments of about 155 million
dollars - to stabilize a 'banking crisis of extraordinary
proportions.'
The global financial crisis sparked the collapse of three of
Iceland's major banks and a rapid depreciation of the krona.
The nation is facing a severe recession through 2010, the fund
said in a statement.
The IMF forecast that Iceland's economy would be badly damaged,
with real gross domestic product (GDP) falling 9.6 per cent next year
after an expected 1.6-per-cent advance in 2008.
It estimated that the unemployment rate would quadruple to 5.7 per
cent next year.
However, once confidence is restored and balance sheets
readjusted, the IMF predicts domestic demand to rebound strongly in
2011.
'Iceland's long-term growth prospects remain favourable,
buttressed by its very strong fundamentals of a highly educated
labour force, a favourable investment climate, and a rich natural
resource endowment,' said John Lipsky, the IMF's first deputy
managing director, in a statement.
USA
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