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IMF frees up $225m for Iceland

WASHINGTON (AFP) ― The International Monetary Fund said Friday it had okayed a sixth tranche of $225 million in financing for Iceland, citing Reykjavik’s “impressive progress” in post-crisis restructuring.

The IMF said Iceland’s economy would likely return to growth this year, but still faced risks from inflationary pressures, delays in investment projects, joblessness and slow private sector debt restructuring.
The Landsbanki headquarters in Reykjavik, Iceland (Bloomberg)
The Landsbanki headquarters in Reykjavik, Iceland (Bloomberg)

It also approved the country’s strategy on easing capital controls as “appropriately cautious.”

“Given the scale of potential outflows, the removal of capital controls must proceed gradually. The authorities’ intention to condition the pace of liberalization on the balance of payments outlook and the stability of the financial system is appropriate,” the IMF said in a statement after its latest review of the economy.

“A further build-up of international reserves will be important for the successful implementation of this strategy.”

It also warned about the need to continue strengthening financial institutions, saying the government needs to “resist absorbing private sector losses” to maintain a sustainable level of public debt.

The government was managing the liabilities of its 2008 takeover of the failed bank Landsbanki through strong recovery of bank assets, according to the IMF.

But, it warned, “the resolution of the Icesave dispute through legal channels could increase fiscal risks.”

Britain and the Netherlands were forced to dish out a total of 3.9 billion euros ($5.5 billion) to reimburse some 340,000 of their citizens hit by the collapse of Icesave, the former offshore branch of Landsbanki.

The IMF disbursement is the latest slice of a $2.2 billion bailout program dating to the country’s financial collapse in 2008.