IMF board approves $2.1 billion loan for Iceland

WASHINGTON (Reuters) - The International Monetary Fund said on Wednesday its board approved a $2.1 billion loan for Iceland to try to stabilize what the fund called a “banking crisis of extraordinary proportions.”

The two-year, stand-by arrangement is structured so that Iceland can immediately draw about $827 million, with the rest in eight installments of about $155 million, subject to quarterly reviews.

“Iceland is in the midst of a banking crisis of extraordinary proportions,” John Lipsky, the IMF’s first deputy managing director, said in a statement.

The country has been anxiously awaiting emergency funding after the global financial crisis sparked the collapse of three of its major banks and rapid depreciation of the crown.

The IMF said on October 24 that its staff had hammered out a loan agreement, which would be presented to the board in early November.

However, consideration was delayed because of disputes with European creditors, including the Netherlands and Britain, over their citizens’ deposits in Icelandic banks abroad.

“Iceland is facing a severe recession, given the high debt level in the economy and significant dependence of the private sector on foreign currency and inflation-indexed debt,” Lipsky said.

Finland, Sweden, Norway and Denmark plan to lend Iceland a total of $2.5 billion, a Finnish official said earlier on Wednesday.

Reporting by Emily Kaiser and Lucia Mutikani; Editing by James Dalgleish, Leslie Gevirtz