NORDIC REGION - Denmark, Finland, Norway and Sweden have agreed to supplement a $2.1bn (€1.6bn) IMF bailout of Iceland with additional loans of $2.5bn.
The executive board of the International Monetary Fund (IMF) has approved a $2.1bn two-year stand-by arrangement for Iceland to support the country's "program to restore confidence and stabilise the economy" following the collapse of three main banks accounting for 85% of the banking system.
Under the terms of the arrangement, $827m will be available to Iceland immediately with the remainder issued in eight instalments of $155m - subject to quarterly reviews - which the IMF said is intended to help achieve three key aims to contain the negative impact of the crisis:
The money approved by the IMF is expected to cover 42% of Iceland's 2008-10 financing gap, estimated at between $5-6bn, while the remainder is expected to come from bi-lateral loans from other countries.
The finance ministers of Denmark, Finland, Norway and Sweden have issued a joint statement confirming the four Nordic countries had "jointly decided to supplement the IMF financing with additional loans of $2.5bn".
The ministers - Anders Borg from Sweden, Kristin Halvorsen from Norway, Jyrki Katainen from Finland and Lars Løkke Rasmussen from Denmark - stated: "This is a first step to get Iceland out of its current serious financial and economic situation. The banking crisis in Iceland is of unprecedented proportions and has serious implications for the country's economy."
In the statement, the four countries - which are part of a Nordic joint task force established in October - stressed the loans would help fund "ambitious multi-year fiscal consolidation programme to help Iceland stabilise the economy, including the exchange rate, and reduce public debt over the medium-term".
It added: "We understand that Iceland is fully committed to honouring its international obligations. The work with implementing the IMF programme will not be easy but given appropriate measures we believe that there is a good basis for rebalancing the economy. We stand ready to assist Iceland in the spirit of continuous Nordic cooperation."
Following the IMF's approval of the stand-by arrangement, Poul Thomsen, mission chief for Iceland and deputy director in the European department at the IMF, admitted he was "very confident" the remaining money needed to fill Iceland's financing gap would be received from other countries.
He admitted although the cost of the IMF loan to Iceland is recalculated on a fortnightly basis, it currently stands at "a little bit more than 4%", but highlighted the terms of the loans from other countries had not yet been agreed.
Thomsen said: "They are actually coming under discussion in the next couple of weeks. We have gotten assurances that governments are willing to provide the loan, but the actual terms of the loan are not known. We know that it's going to be medium-term loans with a grace period so it doesn't burden the balance of payments in the short run."
Meanwhile, the IMF confirmed the executive board had initiated fast-track procedures to gain approval for monetary assistance to Latvia.
Dominique Strauss-Kahn, managing director of the IMF, said as a result of the financial crisis Latvia is experiencing a sharp downturn in output growth and external funding pressures and so the "Latvian authorities have asked the Fund, together with the EU, to provide technical and financial support".
"The IMF's executive board has initiated fast-track procedures. I have informed the authorities that the IMF stands ready to rapidly assist their efforts in the context of a comprehensive economic program, and in close cooperation with the EU," added Strauss-Kahn.
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