Nov. 7 (Bloomberg) -- Poland's Finance Ministry said it agreed to lend Iceland $200 million, part of a $6 billion aid package from a group led by the International Monetary Fund following the collapse of the island's banking system.

Poland joins the IMF, Norway the Faroe Islands, which have pledged about $2.8 billion to help revive Iceland's economy. There is no formal accord on the entire $6 billion package, said Greta Ingthorsdottir, an adviser to Iceland's Prime Minister Geir Haarde.

The aid package ``is about buying time,'' said Thomas Haugaard, senior economist at Svenska Handelsbanken AB in Copenhagen. ``It's not a permanent solution'' to the banking crisis and the paralysis of its foreign exchange market.

Iceland needs money to shore up its economy which the central bank yesterday predicted would contract 8.3 percent next year as inflation accelerates. If the government succeeds in preventing a further collapse of the currency, inflation will average 14.1 percent in 2009, the bank forecast.

A final agreement on the loan accord ``will take a few more days,'' Haarde told a press conference today in Reykjavik.

The group of countries aiding Iceland includes Scandinavian countries, the U.K. and the Netherlands, the Polish Finance Ministry said in an e-mailed statement. Magdalena Kobos, a spokeswoman for the ministry, confirmed the authenticity of the statement by telephone.

No Decision Yet

``I am not aware that other Nordic countries - Sweden, Denmark or Finland - have yet made any concrete decisions on funding or that there would even have been any discussion on the shares of different countries,'' said Ilkka Kajaste, Deputy Director General at Finland's Finance Ministry.

The IMF executive board has postponed a meeting to approve a loan of $2.1 billion for Iceland until next week, Haarde said today. The IMF said on Oct. 30 the board would consider the loan on Nov. 5. Norway has pledged 500 million euros ($642 million) and the Faroe Islands has agreed 300 million Danish kroner ($52 million).

``We haven't reached the stage where we've committed ourselves to a specific amount,'' said Per Jansson, state secretary at the Swedish finance ministry. ``Our ambition is to reach a solution as soon as possible.''

Central bank Governor David Oddsson on Oct. 7 said he'd overstated the extent to which Iceland had secured a loan from Russia worth 4 billion euros ($5.1 billion). There has been no statement on the talks since Oct. 15.

Record Rates

The central bank yesterday kept its benchmark interest rate at a record 18 percent, following conditions dictated by the IMF.

Iceland needs to keep rates high to stabilize the currency. The central bank, which now holds daily krona auctions setting the rate at about 164 per euro, has urged banks to reserve foreign exchange for purchases of food, fuel and medicine as it tries to revive the currency.

The government took control of the island's three biggest banks, Kaupthing Bank hf, Landsbanki Islands hf and Glitnir Bank hf last month after they were unable to secure short-term funding. That precipitated the collapse of the krona, with the central bank attempting a currency peg, only to abandon the measure the following day citing ``insufficient support.''

The three banks together amassed debt worth $61 billion, equivalent to about 12 times the size of the economy, according to Bloomberg data. The government has yet to provide a clear plan on how that debt will be repaid, with Glitnir and Kaupthing already having failed to make bond payments.

The U.K. Treasury said yesterday it will lend about 800 million pounds ($1.3 billion) to the national deposit guarantee program to allow it to repay savers whose money is trapped in the British subsidiary of Landsbanki.

`Ring-Fencing'

According to credit analysts Eileen Zhang at Standard & Poor's, the government is ``ring-fencing'' the domestic interests and ``probably abandoning'' external liabilities, she said in an Oct. 9 interview.

Icelandic officials prepared for talks with creditors in the next few weeks aimed at restructuring the country's banks' foreign currency debt, the Wall Street Journal reported today, citing participants. Deloitte & Touche LLP has been hired to give advice to the resolution committees set up by the Icelandic Financial Services Authority, the Journal reported.

Moody's Investors Service had rated Iceland's government bonds Aa1 until Oct. 8 this year. The rating company now ranks the island's state debt A1. Moody's also cut its foreign currency bond rating to Aa1 from Aaa on Oct. 8.

To contact the reporter on this story: Nathaniel Espino in Warsaw nespino@bloomberg.net

Last Updated: November 7, 2008 11:28 EST