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IMF funding for Iceland is not conditional upon banking compensation plan

The International Monetary Fund (IMF) has today entered the fray regarding the ongoing Icelandic banking compensation bill which was passed through parliament last week but has been held up by activists within Iceland. The president of Iceland is unwilling, at least at this moment in time, to sign off the bill which would see £3.4 billion split between the UK government and the Netherlands authorities to cover compensation payments regarding the collapse of the Icelandic banking system.

It was believed that IMF funding, which is vital to the Icelandic economic recovery, was at least part connected to the banking compensation plan. However, the IMF has today confirmed there is no connection and if the Icelandic authorities decide not to sign off the agreement there will be no repercussions regarding future loans to the country.

This is obviously a bitter blow for the likes of Alistair Darling and his counterpart in the Netherlands who were under the impression this was a "done deal" and the funds would be forthcoming in the short term. Let us not forget that it was the UK government that part funded a number of loans to the Icelandic government in the aftermath of the banking collapse, under the impression they would be used to compensate savers. If this is not the case there could be serious repercussions for the relationship between Iceland and the UK.

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