Iceland offered economic support

Nordic neighbours and IMF promise loans as Iceland struggles amid credit crisis.

    Haarde is confident that with IMF help Iceland's  economy will improve by 2010 [EPA]

    Iceland's three biggest banks were nationalised in October amid the global credit crisis after the economy collapsed under the weight of their debts.

    "Iceland is in the midst of a banking crisis of extraordinary proportions," John Lipsky, acting IMF chairman, said in a statement on Wednesday.

    "The three main banks, accounting for about 85 per cent of the banking system, collapsed within a time span of less than one week."

    IMF loan

    $827 million will be made available to Iceland immediately and the remainder of the IMF loan would be paid out in eight installments of $155m, according to the statement.

    Lipsy said Iceland faced serious economic challenges but has promising long-term prospects because of its well-educated workforce and abundant natural resources. 

    "The road ahead is difficult. The programme is subject to exceptionally large uncertainty and significant risks, reflecting the unprecedented magnitude of the banking sector collapse," he said.

    The approval of the loan had been held up by a dispute between Iceland and Britain over Britons' savings in failed Icelandic banks. Britain wanted the deposits of its citizens paid back first.

    The loan is the first to a Western European country from the IMF since Britain received one in 1976.

    Trade in Iceland's currency has all but stopped and the country is braced for a sharp economic contraction in the coming year.

    There is also the possibility of further interest rate hikes following the six-point increase to 18 per cent last month, that was reportedly recommended by the IMF.

    Optimism

    On Tuesday, Geir Haarde, the Icelandic prime minister, struck an optimistic tone about the country's economic future.

    "With help from the International Monetary Fund, we will be able to quickly put this difficult period behind us," Haarde told the German business newspaper Handelsblatt.

    "We will be back in 2010."

    In total, Iceland expects it could need to borrow some $24bn over several years to ensure its financial system and currency can function properly again.

    Other Nordic countries, the European Union and Russia have all been asked for help by the Icelandic government.

    SOURCE: Agencies


    YOU MIGHT ALSO LIKE

    Why some African Americans are moving to Africa

    Escaping systemic racism: Why I quit New York for Accra

    African-Americans are returning to the lands of their ancestors as life becomes precarious and dangerous in the USA.

    Why Jerusalem is not the capital of Israel

    Why Jerusalem is not the capital of Israel

    No country in the world recognises Jerusalem as Israel's capital.

    North Korea's nuclear weapons: Here is what we know

    North Korea's nuclear weapons