Press Release No. 11/39

Press Release No. 11/39
February 11, 2011

A mission from the International Monetary Fund (IMF), headed by Julie Kozack, visited Reykjavík during January 31–February 12 to hold discussions for the fifth review under the US$2.1 billion Stand-By Arrangement (SBA, see Press Release No. 08/296). The mission met with senior government officials, parliamentarians, academics, representatives of the private sector, and labor organizations.

At the conclusion of the mission, Ms. Kozack made the following statement:

“The Icelandic authorities and the IMF mission have held productive discussions for the fifth review of the SBA.

“The Icelandic economy is recovering. In 2011, Gross Domestic product (GDP) growth is set to turn positive for the first time since the crisis, though there is uncertainty surrounding the prospects for investment and private consumption. Inflation is projected to remain close to the central bank’s target. Public and external debt remain on a downward path, supported by the steady implementation of fiscal consolidation measures and projected improvements in the balance of payments. Reducing Iceland’s still-high unemployment remains a key challenge.

“Financial sector restructuring is moving forward. Savings banks and non-bank financial institutions are being recapitalized, and the supervisory framework is being strengthened by amendments that will be enacted in the coming months. Moreover, recent agreements to restructure the debts of households and small enterprises will help put households, corporations and banks on a more secure financial footing, which is essential for a sustainable recovery.

“Policy discussions focused on the strategy to liberalize capital controls, fiscal and monetary policies, and financial sector reforms. The mission also held preliminary discussions with the authorities on the future monetary policy framework.

“Broad agreement has been reached on policies to deliver program objectives, but the authorities are still in the process of developing their strategy for liberalizing capital controls. Discussions on the revised strategy will continue in the next few weeks, with the aim of bringing the review to the Fund’s Executive Board by April 2011.”