Second review of economic program by the board of the IMF
The Executive Committee of the International Monetary Fund (IMF) has approved the second review of Iceland‘s economic program. Accordingly USD 830 million in new funding from the IMF, the Nordic countries and Poland will be available to strengthen the CBI‘s currency reserve. The IMF will release USD 160 million, while Poland makes USD 73 million available under the agreement and the Nordic countries an additional USD 600 million.
The government issued a new letter of intent prior to this review describing the success of the economic program and future milestones intended to strengthen economic recovery. The goal of stabilizing the krona exchange rate has been reached and inflation is expected to recede rapidly in coming months. The new commercial banks have been recapitalized and the government has introduced a number of measures to alleviate problems faced by indebted households and corporates.
Lower public debt and an improved outlook for debt sustainability has also led to decreased pressure on cutting public finances compared to the previous outlook. It is now projected that public debt will be lower than previously forecast and will peak at 95% of GDP in 2014, which compares to a 65% net debt position of GDP.
The government's economic program is as before based on three pillars, i.e. an exchange rate target in monetary policy short term, sustaining a secure financial system and firm management of public finance. The government also emphasizes measures to assist indebted households and expedite financial restructuring in the corporate sector.
The government commits to further strengthening of financial regulation and the minister of economic affairs has already introduced a number of bills on financial markets and deposit insurance which are currently under debate by the Parliament. The government also expects to work closely with municipal governments in order to further strengthen their financial situation and sustain the overall goals of the economic program. The government also reaffirms its commitment to reach agreements with the UK and Netherlands in order to ensure that they will be compensated for funds expensed to compensate depositors in the failed banks covered by the Icelandic Deposit Insurance Scheme in Britain and Holland.
The IMF board also agreed to extend the Stand-By Arrangement by three months due to delays in the review of the program, to end August 2011. Other dates in the program will be adjusted accordingly.
Prior to this review government ministers and other representatives met repeatedly with IMF management. This includes meetings by the Minister of Finance, Minister of Economic Affairs, and Deputy Governor of the Central Bank with Dominique Strauss-Kahn Managing Director and a number of Executive Directors on March 25 – 26 in Washington DC. The Minister of Economic Affairs also met with the Managing Director and Executive Directors on April 7 in Washington DC.
“In spite of the delays in the review of the economic program we have met our commitments and are well underway in meeting other goals to strengthen the recovery and economic stability as well as alleviating problems faced by both households and firms,” said Dr. Gylfi Magnusson Minister of Economic Affairs. “The review and our increased access to funds to strengthen the currency reserve underlines the trust that the IMF executive committee and our neighboring countries have shown in our program and our ability to reach our goals.”
For information please contact Benedikt Stefansson, Advisor to the Minister at +354 545 8800 or e-mail benedikt.stefansson [at] evr.is.