Iceland Economy Bankrupt, Government Collapses

Iceland’s Prime Minister, Geir H. Haarde, announced today the resignation of the coalition government of the Independence Party and the Social Democratic Alliance. At 16:00 the Prime Minister met with the President of Iceland, Mr. Olafur Ragnar Grimsson, and handed in a resignation of the government. The President has requested that the outgoing government remains in office until a new government is formed.

The upper part is reported by the government of Iceland, particularly from the Foreign Ministry website. However, IMF says that the global economic outlooks is not looking good.

he world faces a deepening economic crisis, with the slowdown in advanced economies now spreading to major emerging markets such as China, India, and Brazil, Dominique Strauss-Kahn, IMF Managing Director, warned.

He said the IMF would significantly adjust downward its forecast for world growth for 2009 when the 185-member international institution announces a revised assessment of the global economy on January 28. In an update released last November, the IMF had said that advanced economies would see a contraction in output in 2009—the first since World War II—but that growth in major emerging markets would still enable the global economy to advance by 2.2 percent in 2009.

Deteriorating outlook

But Strauss-Kahn said in an interview with the BBC's Hardtalk program, broadcast on January 21, that economic prospects had worsened over the past few months and the IMF would announce lower numbers at the January 28 press conference in Washington DC.

"So 2009 will not be a good year for the world economy, even if we see recovery at the beginning of 2010," he said.

Prospects were worse than expected not just in the United States and Europe but also in major emerging market economies such as China, India, and Brazil, which would experience very low growth compared with recent historical trends.

Stimulus key to recovery

The IMF has recommended a combination of measures to get the world back on track, including

• action already taken by many governments to stabilize financial markets and get credit flowing again;

• fiscal stimulus through a combination of increased government spending and tax cuts to revive consumer demand;

• liquidity support for emerging market countries to reduce the adverse effects of the widespread capital outflows triggered by the financial crisis; and

• help for low-income countries harmed by fallout from the crisis and the lingering impact of last year's spike in food and fuel prices.

The IMF has proposed that governments in a position to do so should act together to inject a global fiscal stimulus equivalent to about 2 percent of world GDP—$1.2 trillion.

By Iceland Government and IMF