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Iceland to get $6 billion IMF-led rescue package: report
2008-10-20
REYKJAVIK (AFP) - Iceland will soon announce a six-billion dollar (4.5-billion-euro) economic rescue plan sponsored by the IMF and several central banks, the Financial Times (FT) reported on its website Monday. The International Monetary Fund will shell out just over one billion dollars, while central banks from the Nordic region and Japan will chip in the rest for the Icelandic relief package, the FT reported, citing people with knowledge of ongoing talks between Reykjavik and the IMF. "It is unknown whether Russia will participate in the rescue plan," the paper wrote. Icelandic government spokeswoman Urdur Gunnarsdottir refused to comment on the report, only telling AFP that "a decision on IMF aid will be taken by Thursday." A source close to the IMF negotiations meanwhile told AFP an announcement could be made as early as Tuesday morning following a cabinet meeting, but would not comment on the information provided in the FT article. Iceland's once booming financial sector has in recent weeks collapsed under the weight of the global financial crisis, with the government forced to take over the major banks for lack of liquidity as its krona nose-dived. The currency has lost more than half of its value since January. In an attempt to reboot its struggling foreign trade, the island nation on the edge of the Arctic Circle has been scrambling to get hold of foreign currency. Last week, an Icelandic delegation went to Moscow to try to negotiate a loan that could be worth as much as four billion euros (5.4 billion dollars). The two sides failed to reach an agreement but negotiations are continuing. If Iceland does receive a loan from the IMF, it would be the first Western country to do so since 1976. "IMF agreement to provide support was a condition for the Bank of Japan and Nordic central banks to help," the FT said. According to the paper, the negotiations have focused on three areas: the banking sector, fiscal policy and monetary policy and the exchange rate. The IMF, often criticised for imposing harsh conditions on already struggling nations, has "sought assurances on the restructuring of the (banking) sector" but has not placed any deadlines on when Reykjavik must privatise the country's three largest banks, the FT reported. "These measures are regarded as a sign that the IMF is not attaching punitive conditions on ... Iceland as part of its rescue package," it said.
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