Today, the IMF announced that its Executive Board has approved a $2.1 billion two-year stand-by arrangement for Iceland “to support the country’s program to restore confidence and stabilize the economy.” The arrangement, which was first announced last month and approved under the IMF’s fast-track Emergency Financing Mechanism, makes $827 million available immediately, with the remainder to be provided in eight installments of $155 million over the two-year period, subject to quarterly reviews. Iceland will repay the loan over the years 2012-2015. Iceland’s recent agreement to guarantee certain international deposits was seen as a condition to approval of the IMF loan. The IMF has recently announced financing packages for Pakistan, Hungary, and Ukraine, among others.
Confirming the IMF loan, Iceland’s Prime Minister also announced that additional loans of up to $3 billion “have been secured from Denmark, Finland, Norway, Sweden, Russia, and Poland.” This is in addition to $50 million pledged to Iceland by the Faroe Islands. Iceland’s Prime Minister had applied for support from the Nordic Council during a meeting last month where the possibility of a loan from Russia was first mentioned. The Ministers of Finance in Denmark, Finland, Norway, and Sweden released a joint statement expressing support for Iceland and the hope that the IMF’s multi-year fiscal consolidation program “will help Iceland stabilize the economy, including the exchange rate, and reduce public debt over the medium-term.” Of the funding, Iceland’s Prime Minister stated, “[o]ur task now is to overcome the difficulties we face and to regain the trust and the standing among other nations which we enjoyed before the impact of the global financial crisis struck Iceland.” Trouble for Iceland came to a head last month when the government seized its three largest banks: Kaupthing Bank hf, Landsbanki Islands hf, and Glitnir Bank hf.
Separately, the Central Bank of Iceland announced that the central banks of “Sweden, Norway, and Denmark have decided to extend the currently valid foreign currency swap agreements until year-end 2009.” The agreements were originally concluded on May 16, 2008. Each agreement provides the Central Bank of Iceland with access to a maximum combined total of €1.5 billion in exchange for Icelandic krona. Iceland had previously drawn on swap arrangements with Denmark and Norway.