(Adds details from conference call, IMF documents)
WASHINGTON, June 6 Iceland's new plan to lift
capital controls in two phases is a "difficult challenge" and
will depend on the country returning to global capital markets,
a senior International Monetary Fund official said on Monday.
IMF mission chief to Iceland Julie Kozack told a conference
call with reporters the authorities' commitment to strong
policies should enable the economy to stay on the course of
The IMF approved a $225 million loan disbursement for
Iceland on Friday as it nears the end of a $2.1 billion IMF
program agreed in 2008 after its top banks collapsed, forcing
it to seek financial aid from the IMF and Nordic partners.
"The authorities' strategy strikes the right balance
between moving cautiously and not eroding any of the gains made
so far which could undermine confidence," Kozack said.
She said it was up to Iceland's government to decide
whether it wants a follow-up IMF loan program.
Kozack said it was important that Iceland return to the
markets as quickly as possible, although the fund does not have
a specific timeline in mind for when that should happen.
"The sooner Iceland can return to markets the better,"
Kozack said, adding: "It (would be) a very strong signal of a
normalization of Iceland's relationship with international
capital markets and that is an important signal."
In a sign of its recovery, Iceland has begun meeting with
investors about a possible Eurobond as it prepares its first
international sale of bonds since its economic meltdown.
Kozack said Iceland's credit default swap spreads have been
at post-crisis lows of around 210 basis points, which "gives us
some comfort that Iceland may be able to issue (debt) at
Debt crises in Ireland, Greece and Portugal have pushed up
The latest IMF review was delayed due to a nationwide
referendum in which Icelandic voters rejected a revised $5
billion repayment plan for Britain and the Netherlands for
money lost in a Landsbanki Icesave accounts during the
The dispute will now be decided through legal channels.
An IMF report released on Monday said a
better-than-expected asset recovery of Landsbanki estate
"provides comfort that public finances will remain on a
sustainable path even if Iceland is found to have a sovereign
obligation in the Icesave dispute".
Kozack said the IMF was initially concerned that the
uncertainty around the unresolved Icesave dispute could affect
investment plans and hurt economic growth in Iceland. However,
she said 2011 investment projects remain well financed and have
not been affected by the Icesave dispute.
"We have not revised our investment projections down and we
are still confident investment will continue going forward, and
that growth will be investment led," she added.
(Reporting by Lesley Wroughton; Editing by James Dalgleish)