Iceland and IMF 2008

Problems in Iceland economy

  • In lead up to 2008, the Icelandic economy ran a very large current account deficit, financed by financial flows into Icelandic banks.
  • The large current account deficit and external debt, suggested the economy was living beyond means in era of tighter capital flows.
  • The credit crunch of 2008 caused Icelandic banks to lose money and default.
  • Collapse in Icelandic banks led to loss of confidence in Icelandic economy
  • Withdrawal of money caused depreciation in currency.
  • This depreciation caused inflation and necessity of higher interest rates

See more detail: Problems with Iceland economy

Rescue package to Iceland

  • $2.1billion loan to Iceland. This represents 1,190 percent of Iceland’s quota.
    The loan is part of a package aiming at:
  • restoring confidence in financial sector.
  • stabilising Icelandic krona.
  • Stabilising Icelandic fiscal position

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