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Success: Iceland Exits IMF Recovery Program

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Iceland on Wednesday showed nervous Europe investors along with the rest of the world that it’s possible to exit successfully from supervision by the International Monetary Fund.

An IMF report on Iceland said that officials from the country met with an IMF staff team earlier this summer to discuss Iceland’s economic developments and policies.

“Iceland’s fund-supported program has been a success, and program objectives have been met,” the IMF concluded. “Recapitalization of Iceland’s core banking system has been completed. Work on reducing remaining vulnerabilities and strengthening prudential regulations and supervision is ongoing, and efforts should be sustained.”

The IMF’s executive board on Aug. 26 completed the sixth and final review of Iceland’s economic performance. The review allows for about €312.4 million, or $450.6 million, in IMF funds for Iceland, bringing total disbursements under the program to an amount equivalent to about $2.25 billion.

Iceland will spend the next three years paying off those IMF loans—and the IMF warns that Iceland’s more immediate economic problems are not resolved.

“The economic recovery is tentative. Moderate growth is expected in 2011, but unemployment remains high and inflation is rising on the back of high commodity prices,” the report said.

New York Times columnist Paul Krugman on Thursday took note of Iceland’s exit from the IMF program in his “Conscience of a Liberal” blog.

“Iceland still has high unemployment and is a long way from a full recovery; but it’s no longer in crisis, it has regained access to international capital markets, and has done all that with its society intact,” Krugman wrote, in a clear reference to similar problems currently plaguing the United States. “And it has done all that with very heterodox policies — debt repudiation, capital controls, and currency depreciation. It was as close as you can get to the polar opposite of the gold standard. And it has worked.”

But IceNews, a website providing news from the Nordic countries, warned that world financial instability could hamper Iceland’s recovery.

Iceland experienced one of the deepest financial crises in modern history after its banking system collapsed in 2008.