{
  "title": "Press Release: IMF Executive Board Approves US$2.1 Billion Stand-By Arrangement for Iceland",
  "publication": "IMF News, November 19, 2008",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/14/01/49/pr08296",
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  "summary": "Executive Board approved a two-year SDR 1.4 billion (about US$2.1 billion) Stand-By Arrangement for Iceland on November 19, 2008.",
  "authors": [
    "Arrangement. Program Summary Under"
  ],
  "publishDate": "2008-11-19",
  "sections": [
    {
      "heading": "Program approval and financing",
      "content": "- Executive Board approved a two-year SDR 1.4 billion (about US$2.1 billion) Stand-By Arrangement for Iceland on November 19, 2008.\n- SDR 560 million (about US$827 million) made immediately available; remainder disbursed in eight equal installments of SDR 105 million (about US$155 million), subject to quarterly reviews.\n- Arrangement entails exceptional access to IMF resources, amounting to 1,190 percent of Iceland's quota.\n- Approved under the Fund's fast-track Emergency Financing Mechanism procedures.\n- The Stand-By Arrangement is expected to fill about 42 percent of Iceland's 2008-2010 financing gap; the remainder to be met by official bilateral creditors."
    },
    {
      "heading": "Objectives of the IMF-supported program",
      "content": "- Contain the negative impact of the crisis by restoring confidence and stabilizing the exchange rate in the near-term.\n- Promote a viable domestic banking sector and safeguard international financial relations via a sound banking system strategy that is nondiscriminatory and collaborative.\n- Safeguard medium-term fiscal viability by limiting socialization of losses in collapsed banks and implementing an ambitious multi-year fiscal consolidation program."
    },
    {
      "heading": "Immediate policy measures and strategy",
      "content": "- Exchange rate stabilization:\n  - Maintain an appropriately tight monetary policy in the context of a flexible exchange rate policy.\n  - Restrictions on capital outflows to remain in the near term.\n- Banking sector strategy to be comprehensive and collaborative, including:\n  - Putting in place an efficient organizational structure to facilitate restructuring.\n  - Proceeding promptly with valuation of banks' assets.\n  - Maximizing asset recovery in the old banks.\n  - Ensuring fair and equitable treatment of depositors and creditors of intervened banks.\n  - Strengthening supervisory practices and the insolvency framework.\n- Fiscal policy:\n  - Allow automatic fiscal stabilizers to work in full during 2009.\n  - Develop a strong medium-term fiscal consolidation plan to be launched in 2010 to cut expenditures and/or raise taxes.\n  - Address very substantial increase in public sector debt (of about 80 percent of GDP) due to bank restructuring."
    },
    {
      "heading": "Risks, outlook, and structural strengths",
      "content": "- Program subject to exceptionally large uncertainty and significant risks, reflecting the unprecedented magnitude of the banking sector collapse.\n- Authorities committed to resolute policy implementation and readiness to adjust policies as circumstances change, working closely with the Fund.\n- Long-term growth prospects described as favorable, supported by:\n  - A highly educated labor force.\n  - A favorable investment climate.\n  - A rich natural resource endowment."
    },
    {
      "heading": "Recent economic developments (context for program)",
      "content": "- Banking sector collapse:\n  - Three main banks (Glitnir, Landsbanki, and Kaupthing) collapsed within less than one week; they accounted for about 85 percent of the banking system.\n- Key macro imbalances and consequences:\n  - Current account deficit surged to over 15 percent in each of the past three years.\n  - Banking sector accumulated assets amounting to almost 900 percent of GDP by end-2007.\n  - Gross external indebtedness reached 550 percent of GDP by end-2007.\n  - Onshore foreign exchange market dried up; króna depreciated by more than 70 percent in the off-shore market; equity market fell by 80 percent.\n- Government initial actions taken while developing the comprehensive program."
    },
    {
      "heading": "Program summary and expected adjustment path",
      "content": "- Economy expected to adjust sharply in the near term; projected serious recession in 2009-10 given high leverage and private sector dependence on foreign currency and inflation-indexed debt.\n- Anticipated large import compression expected to lead to a rapid swing of the current account into surplus, supporting the exchange rate.\n- Once confidence is restored and balance sheets readjusted, domestic demand (investment and consumption) projected to rebound strongly in 2011.\n- Program focus areas:\n  - Prevent further sharp króna depreciation (tight monetary policy; near-term capital flow restrictions).\n  - Implement comprehensive bank restructuring strategy (valuation, asset recovery, fair treatment, supervisory and insolvency improvements).\n  - Ensure medium-term fiscal sustainability (medium-term consolidation plan launched in 2010; address budgetary cost of recapitalizing banking system and deposit insurance obligations)."
    },
    {
      "heading": "Selected economic projections and indicators (figures as presented)",
      "content": "- Real Economy (change in percent)\n  - Real GDP: 2004: 7.7; 2005: 7.4; 2006: 4.4; 2007: 4.9; 2008: 1.6; 2009: -9.6\n  - Domestic demand: 2004: 10.0; 2005: 16.0; 2006: 9.9; 2007: -1.5; 2008: -9.1; 2009: -19.7\n  - CPI: 2004: 3.2; 2005: 4.0; 2006: 6.8; 2007: 5.0; 2008: 12.7; 2009: 14.3\n  - Unemployment rate (in percent of labor force): 2004: 3.1; 2005: 2.1; 2006: 1.3; 2007: 1.0; 2008: 1.4; 2009: 5.7\n  - Gross domestic investment (in percent of GDP): 2004: 23.5; 2005: 28.4; 2006: 33.7; 2007: 27.6; 2008: 23.9; 2009: 18.2\n- General Government Finances (in percent of GDP) 1/\n  - Financial balance: 2004: 0.0; 2005: 6.3; 2006: 5.5; 2007: -0.2; 2008: -13.5; 2009: ...\n  - Structural overall balance: 2004: 2.9; 2005: 3.5; 2006: 1.5; 2007: -3.4; 2008: -8.7; 2009: ...\n  - Gross debt: 2004: 34.5; 2005: 25.4; 2006: 30.1; 2007: 28.9; 2008: 108.9; 2009: 108.6\n- Money and Credit (change in percent)\n  - Domestic credit (end of period): 2004: 37.2; 2005: 54.7; 2006: 33.6; 2007: 28.3; 2008: -19.1; 2009: -4.1\n  - Broad money (end of period): 2004: 15.0; 2005: 23.2; 2006: 19.6; 2007: 56.4; 2008: 34.0; 2009: -4.4\n  - CBI policy rate (period average, in percent) 2/: 2004: 8.20; 2005: 10.49; 2006: 14.08; 2007: 13.75; 2008: 14.9; 2009: ...\n- Balance of Payments (in percent of GDP)\n  - Trade balance: 2004: -5.5; 2005: -12.2; 2006: -17.7; 2007: -10.1; 2008: 0.1; 2009: 10.3\n  - Current account balance: 2004: -9.8; 2005: -16.1; 2006: -25.4; 2007: -14.6; 2008: -10.7; 2009: ...\n  - Financial and capital account balance: 2004: 13.7; 2005: 36.5; 2006: 13.4; 2007: -118.9; 2008: -11.4; 2009: ...\n  - Gross external debt 3/: 2004: 179.1; 2005: 285.7; 2006: 445.9; 2007: 551.5; 2008: 670.2; 2009: 159.5\n  - Reserves 4/: 2004: 1.8; 2005: 3.4; 2006: 3.3; 2007: 11.0; 2008: ...\n- Fund position (as of November 18, 2008)\n  - Holdings of currency (in percent of quota): 84.2\n  - Holdings of SDRs (in percent of allocation): 7.3\n  - Quota (in millions of SDRs): 117.6\n- Exchange rate\n  - Exchange rate regime: Floating Exchange Rate\n  - Present rate (November 18, 2008) 5/: 218.2\n  - Nominal effective rate (change in percent) 6/: 2006: 10.4; 2007: 2.8; 2008: -43.0\n  - Real effective (change in percent) 6/: 2006: -6.8; 2007: -36.4\n\nPress Release No. 08/296 — International Monetary Fund\n\n---\n\n\n References\n\n- Iceland and the IMF\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr08296"
    }
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    "Authors: Arrangement. Program Summary Under",
    "Published: November 19, 2008",
    "Executive Board approved a two-year SDR 1.4 billion (about US$2.1 billion) Stand-By Arrangement for Iceland on November 19, 2008.",
    "SDR 560 million (about US$827 million) made immediately available; remainder disbursed in eight equal installments of SDR 105 million (about US$155 million), subject to quarterly reviews.",
    "Arrangement entails exceptional access to IMF resources, amounting to 1,190 percent of Iceland's quota.",
    "Approved under the Fund's fast-track Emergency Financing Mechanism procedures.",
    "The Stand-By Arrangement is expected to fill about 42 percent of Iceland's 2008-2010 financing gap; the remainder to be met by official bilateral creditors.",
    "Contain the negative impact of the crisis by restoring confidence and stabilizing the exchange rate in the near-term.",
    "Promote a viable domestic banking sector and safeguard international financial relations via a sound banking system strategy that is nondiscriminatory and collaborative.",
    "Safeguard medium-term fiscal viability by limiting socialization of losses in collapsed banks and implementing an ambitious multi-year fiscal consolidation program.",
    "Exchange rate stabilization:",
    "Banking sector strategy to be comprehensive and collaborative, including:",
    "Fiscal policy:",
    "Program subject to exceptionally large uncertainty and significant risks, reflecting the unprecedented magnitude of the banking sector collapse.",
    "Authorities committed to resolute policy implementation and readiness to adjust policies as circumstances change, working closely with the Fund.",
    "Long-term growth prospects described as favorable, supported by:",
    "Banking sector collapse:",
    "Key macro imbalances and consequences:",
    "Government initial actions taken while developing the comprehensive program.",
    "Economy expected to adjust sharply in the near term; projected serious recession in 2009-10 given high leverage and private sector dependence on foreign currency and inflation-indexed debt.",
    "Anticipated large import compression expected to lead to a rapid swing of the current account into surplus, supporting the exchange rate.",
    "Once confidence is restored and balance sheets readjusted, domestic demand (investment and consumption) projected to rebound strongly in 2011.",
    "Program focus areas:",
    "Real Economy (change in percent)",
    "General Government Finances (in percent of GDP) 1/",
    "Money and Credit (change in percent)",
    "Balance of Payments (in percent of GDP)",
    "Fund position (as of November 18, 2008)",
    "Exchange rate",
    "[Iceland and the IMF](http://www.imf.org/external/country/ISL/index.htm)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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