2nd UPDATE: IMF Finishes Iceland Loan Review

(ADDS additional IMF official quotes.)

 
  By Meena Thiruvengadam 
  Of DOW JONES NEWSWIRES 
 

WASHINGTON -(Dow Jones)- The International Monetary Fund said Wednesday it has completed its first review of Iceland's economic performance under a loan agreement reached late last year, paving the way for the disbursement of an additional $167.5 million in aid.

The IMF also said it has extended the length of the loan agreement by six months, into May 2011.

The IMF loan to Iceland is valued at about $2.1 billion.

The fund already has disbursed $827 million but a second installment of loan funding was delayed for months because of policy clashes and other issues.

"Iceland was having some difficulty in reaching agreements with some of its external creditors. This was holding up our efforts to secure financing from other countries," said Mark Flanagan, the IMF's Iceland mission chief.

In addition to the IMF loan, several neighboring countries have pledged to provide about $2.5 billion in loans to Iceland.

Iceland's economy went into a tailspin late last year after the country was forced to take over its three largest banks, a group that made up nearly the entire Icelandic financial system.

The IMF continues to expect Iceland to begin economic recovery in 2010. But,"2009 has been and will continue to be a difficult year," Flanagan said.

Still, there are some positive signs emerging from Iceland. Inflation has dropped and the country's currency, the krona, is stable, said Murilo Portugal, the IMF's Managing Director and Acting Chair.

Iceland will have to struggle with a high level of public debt, but Portugal said he believes financial sector restructuring coupled with fiscal consolidation could help give Icelandic officials room to cut interest rates.

-By Meena Thiruvengadam, Dow Jones Newswires; 202-862-6629; meena.thiruvengadam@dowjones.com

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October 28, 2009 18:22 ET (22:22 GMT)


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