Iceland clinches deal with IMF for 2.1-billion-dollar loan (Roundup)

Oct 24, 2008, 16:32 GMT

Reykjavik/Washington - Iceland has reached an agreement with the International Monetary Fund (IMF) for a 2.1-billion-dollar emergency loan to help stabilize the country's economy, the two sides announced Friday.

An IMF team agreed to the loan during a visit to Iceland. The Washington-based crisis lender's executive board still has to approve the deal and could do so in early November, the IMF said. If approved, Reykjavik could immediately draw on 833 million dollars under the two-year arrangement.

'This programme 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,' Prime Minister Geir Haarde said.

Under the terms of the agreement, Iceland was to 'commit to a sustainable long-term economic policy, and a plan for the recovery of the Icelandic economy,' Haarde said.

The economy of the North Atlantic nation of some 300,000 people has come under severe strain amid the global credit crunch and has been forced to nationalize parts of its banking sector.

An agreement with the IMF will likely pave the way for loans from other sources. IMF Managing Director Dominique Strauss-Kahn said Iceland's rescue plan deserved international support.

'Iceland has put together an ambitious economic program ... to help the country achieve medium-term fiscal consolidation following the collapse of its banking system,' Strauss-Kahn said in a statement.

Foreign Minister Ingibjorg Solrun Gisladottir said the pending IMF agreement 'will provide the necessary impetus for some of our friends and allies in the international system to contribute to the reconstruction of the Icelandic financial system.'

Earlier this week, reports suggested loans could also be forthcoming from Japan, as well as from Iceland's Nordic neighbours.

Haarde said the agreement with the IMF was not tied to a settlement with the British government over British savers' deposits in a collapsed Icelandic internet bank.

London and Reykjavik have been at odds over the repayment of the deposits.

Iceland on Thursday received a delegation from neighbouring Norway. On Friday, Norwegian Foreign Minister Jonas Gahr Store said he was to visit Iceland next month.

The central bank of Iceland recently drew 400 million euros (543 million dollars) from the central banks of Denmark and Norway. This was in accordance with a May agreement it made with the central banks of Sweden, Norway and Denmark.