Today, the IMF announced an “initial agreement with Iceland on a $2.1 billion two-year loan to support an economic recovery program to help the island restore confidence in its banking system and stabilize its currency.” The IMF Executive Board will review the agreement in early November, after which Iceland would be able to draw $833 million immediately. Confirming the agreement, Iceland’s Prime Minister stated that he expects “an agreement with the IMF will encourage lending from other sources.”

The objectives of the program are:

  • Restore confidence in the Icelandic economy and stabilize the Icelandic krona through a comprehensive and strong macro-economic program; 
  • Restore fiscal sustainability and prepare a strong medium-term fiscal consolidation program;
  • Implement a sound banking strategy to re-establish a viable banking system to support the Icelandic economy.

Yesterday, the IMF announced its “readiness to lend billions of dollars to support nations hit by fallout from the global financial turmoil, [and] is holding talks with several countries about possible new lending programs, as well as advising governments how to react to the economic downturn.”