IMF, Nordics pledge $4.6 billion loans to Iceland

[November 20, 2008]  HELSINKI, Finland (AP) -- Four Nordic countries and the International Monetary Fund on Thursday pledged a combined $4.6 billion (euro3.64 billion) in loans to help Iceland recover from its economic meltdown.

Finland, Sweden, Norway and Denmark said they would lend the cash-strapped Atlantic island nation $2.5 billion, while the IMF approved a $2.1 billion support package announced earlier.

"We stress that, as outlined in the IMF program, an ambitious multiyear fiscal consolidation program will help Iceland stabilize the economy, including the exchange rate, and reduce public debt over the medium-term," the Nordic finance ministries said in a joint statement.

Iceland's banking system collapsed in October under the weight of the global credit crunch. The country's currency, the krona, has lost half its value since January. Banking transactions to and from the island nation in the middle of the North Atlantic have seized up, leaving its population of 320,000 virtually stranded.

Finnish Finance Ministry spokesman Martti Hetemaki said the four countries had not yet decided how to split the Nordic loan, but that Finland would have to borrow money to finance its contribution.

"We have a joint desire among the Nordics to help Iceland in extremely difficult economic conditions," Hetemaki said. "The money will be used to stabilize the currency and finance its imports."

Icelandic Prime Minister Geir Haarde said the IMF package would help the country's recovery.

"I believe (it) is an important step forward towards the rebuilding of our economy. With the IMF agreement in place, we can commence our recovery program with full force and bring our economy back on track," Haarde said in a statement. "I thank those countries who also contributed to the loan package."

Last month, Haarde told his Nordic partners in Helsinki that his country needed some $6 billion to recover from the meltdown.

The British, Dutch and German governments also welcomed the IMF decision and said they would "work constructively" with Iceland "on pre-financing that enables Iceland to meet its obligations towards depositors shortly."

Approval of IMF's support package had been held up because of a British-Icelandic dispute over Britons' accounts in failed Icelandic banks.

The IMF had agreed last month to lend Iceland $2.1 billion and help the country raise $3.9 billion in loans from other countries. Britain held up the approval with the argument that Iceland should first pay back British citizens' deposits in failed Icelandic banks.

The dispute was settled after Haarde agreed on Sunday to guarantee the money.

The Norwegian central bank said earlier this month that it would loan $630 million (euro500 million). However, it did not immediately say if this was part of the joint Nordic package revealed Thursday.

Last month, Norway had lent Iceland $242 million, but said at the time it would provide more.

Iceland has already called on a separate swap facility, which provides it with foreign currency to keep its economy functioning. It drew $256 million each from the Norwegian and Danish central banks, but has not used the full amount of $636 million offered by each. A similar deal with Sweden's central bank has also been offered.

The tiny Faeroe Islands, a semiautonomous Danish territory, has also pledged a $51 million loan to Iceland.

[Associated Press; By MATTI HUUHTANEN]

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.