Introduction to International Politics
Foreign Event Analysis
| Locale | ![[]](http://www.kvasaheim.com/flags/flag15-is.png "Flag of Iceland") | Iceland |
|---|---|---|
| Title |
IMF comes to aid of melting Icelandic economy
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| Summary |
Iceland is receiving $2.1 billion dollars in loans from the International Monetary Fund (IMF) in order to bolster their weakening economy. A victim of the global credit crisis, Iceland has seen its three largest banks, about 85% of their banking industry, collapse due to frozen transactions. As the crisis continues, the Icelandic currency, the Krona, has nearly halved and the future of the Icelandic economy looks blight as the IMF predicts a 10% contraction of the economy. The loan from the IMF hopes to stabilize the krona, reintroduce flexible interest rates, and return the overall financial system to normalcy.
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| Analysis |
The IMF is an international economic institution that specializes in the exchange rate system, providing external loans and reviewing domestic policies. The IMF has proved its importance in international relations by leading the effort for the salvation of the Icelandic economy. Functioning as an independent institution, the IMF is able to accomplish its goal without the greed with which Nation-states are often enslaved to obey. The IMF brings a level of global legitimacy in helping the Icelandic economy which is in direct contrast to the proposal when Russia offered to bail Iceland out. The role of the IMF in the Icelandic economy demonstrates the importance of economic institutions.
With the increase in interdependence between economies, the demise of the Icelandic economy would have global repercussions. Countries which once traded heavily with Iceland, which held a competitive advantage in banking services and natural goods, are now at a loss; British citizens have seen their deposits lost in failed Icelandic banks. Furthermore, countries that held a trade surplus with Iceland now have lost a trading partner and are certain to see the GDP lower. It is to the benefit of all members of the global economy that Iceland raises from their recession.
The IMF is looking to fulfill its mission by loaning money to Iceland in order to return the economy to equilibrium, balance its payment sheet and see the value of the Krona rise. The loan will hopefully stop the effects of the global credit crisis and pave the way for Iceland’s economy to rise again. Iceland’s Prime Minister Geir Haarde has noted that IMF loans will hopefully turn the economy around as soon as next year. Trade has been deemed as a collective good from which all nations of the world stand to benefit from and it is through the actions of the IMF that
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| Perspective |  | Liberal |
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| Submitted | November 21, 2008 at 12:50 pm | |
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