Page last updated at 15:36 GMT, Thursday, 18 December 2008

Iceland recovering well, says IMF

A bank customer holds a handful of Icelandic crowns
The krona has stabilised after its collapse in October

Iceland has taken the first important steps towards restoring financial stability according to an International Monetary Fund mission to the country.

Poul Thomsen, heading the mission, said the key objective of stabilising the country's currency was being met.

He added that he was "very confident" that the $2.1bn (1.37bn) loan from the IMF in November would be sufficient to revive the economy.

In October, Iceland's government was forced to take control of three banks.

Worst is over?

"Iceland's IMF-supported programme is advancing well," Mr Thomsen said.

He added that "judicious monetary policy" had helped to stabilise the country's currency, the krona, and that focus would soon turn to lifting capital controls and reducing interest rates.

The worst was behind the country, he told a press conference.

"This is obviously a very, very serious crisis," he said. "But the impact on Iceland is going to be very limited because you were hit with full force upfront."

Progress has also been made on restructuring the financial sector after the government was forced to take over three of the country's biggest commercial banks.

"A framework has been put in place to engage creditors of the old banks, an asset recovery strategy has been put in place and the groundwork has been laid for a valuation of new and old bank assets," Mr Thomsen said.

Work to value assets should start now as a prelude to recapitalising the banks by the end of first quarter, he added.

Another IMF mission will visit Iceland in February next year to conduct a formal review of the economic support programme.

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