Iceland Gets $6 Billion IMF-Led Bailout

The island nation, which had to nationalize its collapsing banks, looks set to receive a $6 billion rescue from the IMF and neighbors

By Renata Goldirova

Iceland, teetering on the verge of national bankrupcy due to global financial meltdown, is likely to receive a $6 billion (€4.5 billion) rescue package tailored by the International Monetary Fund (IMF), Nordic countries and Japan.

According to the Financial Times, the agreement could be announced as soon as on Tuesday (21 October), with the IMF alone expected to contribute over $1 billion. Denmark, Norway, Sweden, Japan and possibly Russia will also step in.

"It's clear from our diplomatic contacts that if and when an agreement is made between the IMF and Iceland, then our neighbours would be quite willing to sail in their wake," Iceland's industry minister Oessur Skarphedinsson was cited as saying by the IHT.

He referred to a possible deal as "quite generous lending facilities."

The Icelandic government recently took control of the country's three biggest banks - Glitnir, Landsbanki and Kaupthing. The krona declined more than 35 percent against the euro between January and September 2008.

In exchange for the financial injection, the IMF will ask Reykjavik to restructure its banking sector, review banking legislation as well as to draw plans on fiscal consolidation to bring down debt levels, the FT reports.

Possible EU perspective

The severe financial crisis has recently prompted speculations about whether Iceland could be poised to join the 27-nation EU, with EU enlargement commissioner Olli Rehn saying the country is capable of achieving such goal if it chooses to do so.

"Iceland is clearly a democratic European country," Mr Rehn said on Monday, according to AFP, pointing to the fact that it has "already negotiated perhaps two-thirds" of the criteria needed to join the bloc.

"This means that were Iceland to pose its candidature, we could quickly complete the negotiations," he concluded.

A fresh opinion poll published on Saturday (18 October) suggests that 70 percent of Icelanders want a referendum on EU membership. Some 49 percent said they were set to vote in favour, while 27 percent are against and 24 percent remain undecided.

The Capacent-Gallup poll was conducted among 1,200 people prior to Iceland's financial meltdown, however.

Speaking to RUV radio earlier this month, Icelandic fisheries minister Einar Kristinn Gudfinsson, a long-standing opponent of EU membership bid, fuelled speculations by saying "Everyone knows that I am against EU membership [but] Today we should think about these questions in a new light."

Provided by EUobserver—For the latest EU related news