The executive board of the International
Monetary Fund (IMF) approved a two-year 2.1 billion dollar loan to Iceland to
"restore confidence and stabilize the economy," the IMF announced on
Wednesday, dpa reported.
The fund said it approved the stand-by arrangement - structured so that Iceland can 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 crown and 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 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.
"Iceland9s long-term growth prospects remain favorable, buttressed by its
very strong fundamentals of a highly educated labor force, a favorable
investment climate, and a rich natural resource endowment," said John
Lipsky, the IMF's first deputy managing director, in a statement.