Washington - 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. 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 about155 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.
