IMF approves $2.1bn Iceland loan

The two-year loan was designed to help the country cope with what the IMF described as "a banking crisis of extraordinary proportions".

The loan aimed to help the country "to restore confidence and stabilise the economy", the IMF said in a statement.

Iceland is the first Western European nation to get an IMF loan since 1976.

The two-year loan, which is subject to quarterly review, allows the country to withdraw about$827m now, and the rest in eight instalments of some $155m.

Iceland's government had expressed frustration last week at delays in the loan's approval.

Contracting economy

Iceland was forced to take over three of its biggest, debt-laden banks last month.

The Nordic nation's troubles have had severe repercussions elsewhere in Europe.

In the UK, individual savers and local councils have been unable to access funds deposited in Icelandic banks.

Iceland's currency, the krona, has almost halved in value this year and banking transactions with other countries have almost completely frozen.

The IMF has warned the country's economy could contract by as much as 10% next year.

Iceland has said the IMF funds will be used to stabilise its currency, reintroduce a flexible interest rate regime and to overhaul its financial regulation system, especially insolvency laws.

Before going to the IMF, it had been in talks with Russia for a $4bn loan, but discussions broke down.