IMF says Iceland recovery on track, cautions on controls

STOCKHOLM Thu May 5, 2011 2:24pm BST

STOCKHOLM May 5 (Reuters) - Iceland's economy is recovering in line with forecasts but a loosening of capital controls could need to be slowed if external financing proved difficult, the International Monetary Fund's mission chief said on Thursday.

Mission Chief Julie Kozack said that conditions for gradually removing the capital controls, introduced during Iceland's financial meltdown to shelter the battered currency, were largely in place, but noted delays might still occur.

"To the extent that the external financing environment proves difficult, capital account liberalization would need to be slowed," she said in a statement, adding Iceland and the IMF had agreed on completion of the fifth review of its $2.1 billion aid programme.

Iceland's top three banks collapsed in late 2008 as the global credit crisis struck, triggering a deep recession, and the country was forced to seek an aid package from the IMF and its Nordic neighbours.

The IMF's aid fifth review had been delayed due to a nationwide referendum in which Icelandic voters earlier this month rejected a revised $5 billion repayment plan for Britain and the Netherlands for money lost in Landsbanki Icesave accounts during the crisis.