IMF: Iceland Efficient in Speedy Restoration of Banks Skip to content

IMF: Iceland Efficient in Speedy Restoration of Banks

Chairman of the International Monetary Fund delegation in Iceland, Mark Flanagan, told members of the Icelandic American Trade Council in a telephone meeting yesterday, moderated by the council’s chairman, Ólafur Jóhann Ólafsson, that it was a big achievement to refinance the Icelandic banks in little more than a year.

Glitnir, one of the failed Icelandic banks, which has now been rebranded as Íslandsbanki. Copyright: Icelandic Photo Agency.

In the meeting, Flanagan also said that the IMF believed the Icelandic government was further along in cutting back on state expenses than had been expected at this point. Flanagan complimented the government on its national budget and its consulting with the country’s main interest groups, Fréttabladid reports.

“What happened in Iceland is unprecedented,” Flanagan said when asked about the country’s position in comparison with other projects around the world that he has been involved in.

Flanagan pointed out that in other countries, where the circumstances have been similar, it had taken 24 to 36 months to get the financial system to where it is today in Iceland. He described it as unrealistic optimism to think that the banking system could be restored in less than a year.

Various projects are unfinished, Flanagan added, including the review of the regulatory environment and the financial market.

Flanagan also stated that Iceland enjoyed better interest on the IMF-led loans than other crisis-stricken countries did and that Iceland would not enjoy as good interest with other lenders.

The IMF collects a one percent premium of the cost that it carries from the loans, he explained. They have floating interest rates, which are converted into a permanent interest rate of 6.57 percent to 12 years. Flanagan stated Iceland would hardly obtain loans in the open market unless they carried interest of ten percent or higher.

Flanagan said at the meeting that the IMF would not get involved in the discussion on heavy industry projects in Iceland—they are internal affairs.

However, domestic consumption alone cannot support the restoration, he argued. Iceland therefore needs direct foreign investment and will probably use the advantage that the country already has when it comes to energy-demanding projects, Flanagan concluded.

In Flanagan’s opinion, the Icelandic banking system is too large and it needs to be downsized in the coming months.

After extensive delays, the board of the IMF completed its review of the economic stabilization program for Iceland on Wednesday, which enables the disbursement of IMF-led loans to Iceland.

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