Decision-Process for IMF Loan to Iceland in a Knot Skip to content

Decision-Process for IMF Loan to Iceland in a Knot

By Iceland Review

The International Monetary Fund (IMF) has postponed its decision-making on a USD 2.1 billion (EUR 1.7 billion) loan to Iceland for an undecided period of time without explaining why, according to the Financial Times website this morning.

Apparently, the IMF board will not decide on whether or not to grant Iceland the loan until Icelandic authorities have managed to acquire loans worth USD 4 billion (EUR 3.2 million) from elsewhere, while other countries are not prepared to confirm loan granting to Iceland until the IMF board approves Iceland’s request for the USD 2.1 billion loan, reports.

The Wall Street Journal reported yesterday that Sweden is waiting for a decision from the IMF board while Finland wants Iceland to provide more details of its economic plan before the Nordic countries agree to participate in the IMF-led loan package.

“We are faced with the fact that some of our closest allies seem to make it a prerequisite for a loan granting that the fund has agreed to the economic stabilization program,” Ólafur Ísleifsson, an Icelandic economist who represented the Nordic and Baltic states on the IMF board 2002-2003, told Morgunbladid, referring to an agreement reached by Icelandic authorities and an IMF delegation in late October.

Although the IMF board has not explained why exactly they constantly postpone their decision-making on a loan to Iceland, Icelandic authorities suspect that both British and Dutch authorities are standing in the way of the decision because of their disputes with Iceland on the compensation of Icesave account holders.

“It certainly has some effect,” said Prime Minister Geir H. Haarde. “It all hangs together.”

“It is like a snake biting its tale,” Ísleifsson explained. “It appears […] that Iceland needs to find an agreeable solution on its dispute with Britain and some other nations.”

The Financial Times points out that British Prime Minister Gordon Brown declared yesterday that he supported IMF’s loan to Iceland, while Dutch Minister of Finance Wouter Bos hinted that the Icesave dispute is the reason for the delay.

Yesterday’s reports on a potential loan from the IMF speculated about whether the board had in fact received a formal request from Iceland. Such speculations, however, proved false. Prime Minister Haarde announced yesterday that the IMF board had confirmed that they had received Iceland’s letter of intent.

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