Press Release No. 10/156

Press Release: IMF Completes Second Review Under Stand-By Arrangement for Iceland, Extends the Arrangement, Rephases Access and Approves US $160 Million Disbursement

April 16, 2010

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Iceland’s economic performance under a program supported by a Stand-By Arrangement (SBA).

At the request of Iceland’s authorities, the Board also extended the SBA by three months to August 31, 2011 to compensate for delays in completing this review, and approved the re-phasing of the undisbursed amounts over the remainder of the arrangement. The completion of the second review enables the immediate disbursement of an amount equivalent to SDR 105 million (about US$160 million), bringing total disbursements under the program to an amount equivalent to SDR 770 million (about US$1.2 billion).

“The crisis 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 and help Iceland’s economy stage a recovery in the second half of 2010,” IMF Managing Director Dominique Strauss-Kahn and Chair, said.

“Looking ahead, the IMF will continue to support Iceland’s efforts to address this crisis in any way it can,” Strauss-Kahn added.

The SBA was approved on November 19, 2008 (see Press Release No. 08/296) for an amount equivalent to SDR 1.4 billion (about US$2.1 billion) and was subsequently extended to May 31, 2011 (see Press release No 09/375). The arrangement entails exceptional access to IMF resources, amounting to 1,190 percent of Iceland’s quota.

Following the Executive Board's discussion on Iceland, Mr. Strauss-Kahn stated:

“The crisis has taken a heavy toll on Iceland, but the policies and financing now in place will ease the burden of adjustment and help the economy stage a recovery in the second half of 2010. Looking ahead, the IMF will continue to support Iceland’s efforts to address this crisis in any way it can. Program policies are geared to address the headwinds from distressed private sector balance sheets, and with determined policy implementation both the recovery and durable reductions in Iceland’s debt burden can be achieved.

“The budget for 2010 strikes an appropriate balance between adjustment to secure public debt sustainability and supporting the recovery. The fiscal focus will now shift towards identifying remaining needed fiscal adjustment measures for the medium-term, and to establishing a stronger fiscal-federal framework. The new public debt management strategy is expected to realize durable reductions in rollover risk.

”Monetary policy will continue to focus on preserving currency stability to support program inflation and growth targets. In light of uncertainties about the timing of new external borrowing, capital account liberalization will remain on hold. In the event of further upward pressure on the krona, stronger emphasis should be placed on reserve accumulation.

“Progress continues towards restructuring the financial system. Key near-term priorities include recapitalizing the remaining savings banks by end-May, identifying any needed steps to reinforce the non-bank financial sector, and continued operational restructuring of banks. These efforts will be complemented by strengthening the framework for regulation and supervision.

“Private sector debt restructuring remains a key means to address macroeconomic and financial sector risks. Measures taken to date have established a framework and greater incentives will be built in for voluntary restructurings. Additional tools will help the insolvency regime and court system to support a large volume of private restructurings, if needed.

“Iceland’s ability to fully implement the program is dependent on mobilizing bilateral external financing and regaining confidence of the markets. Iceland’s commitment to continue with best faith efforts to reach an agreement with the Netherlands and the United Kingdom regarding Icesave deposits is welcome, and all parties are called upon to come to a final agreement expeditiously.”