The IMF cleared the way on Friday for Iceland to receive US$160 million to aid its struggling economy, the second installment of US$2.1 billion in bailout funds from the lending organization.
The move by the IMF executive board came after Icelandic Prime Minister Johanna Sigurdardottir pressed the IMF last month to complete a delayed review of the country’s economic performance.
After the IMF executive board acted, IMF managing director Dominique Strauss-Kahn said he was confident the policies and financing now in place will help Iceland’s economy stage a recovery in the second half of this year.
He said the economic crisis that struck in 2008 “has taken a heavy toll on Iceland and its citizens, but I am confident that the policies and financing now in place will ease the burden of adjustment.”
He said the IMF was ready to support Iceland in any way it can.
In Reykjavik, Icelandic Minister of Economic Affairs Gylfi Magnusson said in a statement that access to the new money will shore up Iceland’s foreign currency reserves.
“[Approval of the financing] shows the trust that the IMF board and the nations helping Iceland have in the results we have achieved, and the ability of Iceland to reach its goals,” he said.
The latest IMF loan installment had been held up by a dispute involving Iceland repaying debts to Britain and the Netherlands, although the IMF insisted this was not the case.
Iceland has not resolved a dispute with these two nations over the repayment of US$5.3 billion to pay off debts spawned by the failure of Icesave, an Icelandic Internet bank that collapsed during the financial crisis.
The first IMF loan disbursement totaled US$1 billion. Finland, Norway and Denmark agreed to provide a further US$2.5 billion to help the country recover from a deep recession.
In other developments, Greece will decide within weeks on whether or not to activate an EU and IMF aid mechanism, Greek Prime Minister George Papandreou told Newsweek.
Athens will start official talks with European officials and the IMF tomorrow to clarify details on the deal which, at an estimated 45 billion euros in the first year, would be the largest such bailout ever attempted if Greece asks for it.
“We will have to make a decision about whether we activate this mechanism in the next few weeks,” he was quoted as saying in the magazine’s April 16 issue. “We haven’t taken an official decision yet. All we’re saying is let’s prepare so that if we have to push the button, it’s ready.”
Papandreou said the aid package was not a bailout and it would give Greece breathing space to move ahead with the necessary reforms.
“It gives us the room to maneuver to make the necessary changes to make our economy a viable one,” he said.
He also said he thought Greece would have no difficulty borrowing on global markets next month, when Greece must refinance 11 million euros of debt.
The first test will be the sale of 1.5 billion euros in short term debt on Tuesday. The same day, officials will travel to the US to gauge appetite for a dollar-denominated bond, although so far markets say interest has been lukewarm.
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