Oct. 12 (Bloomberg) -- Iceland's Industry Minister advocates seeking aid from the International Monetary Fund to attract loans from other countries and central banks, a government adviser said.

Industry Minister Oessur Skarphedinsson, who is also acting foreign minister, is ``favourable to that approach,'' his political adviser Einar Karl Haraldsson said in a telephone interview from Reykjavik today.

Iceland's financial system has imploded, precipitating the collapse of the currency. Efforts to get aid from western governments failed, forcing the nation to turn to Russia. To rebuild their economy, Iceland needs the IMF, says Richard Portes, president of the London-based Center for Economic Policy Research.

``Their only option now is to throw themselves at the mercy of the IMF,'' Portes said in a phone interview in London yesterday. ``That's what they're there for, after all. Why delay?''

Skarphedinsson told Reykjavik-based newspaper Morgunbladid that IMF aid would lead to a strengthening of the currency and allow authorities to lower interest rates ``considerably.''

Coming under IMF economic administration may also encourage other governments to provide loans, Haraldsson said, confirming Skarphedinsson's remarks to Morgunbladid.

An IMF mission is on the Atlantic island preparing a plan for the government to follow, which includes terms of a possible loan, Haraldsson said. That plan is expected to be finalized in the next few days, after which the government must decide whether to accept the aid and the terms under which it's offered, he said.

``I don't think the conditions of the IMF will be much different from what our own economists are saying,'' Haraldsson said, indicating the government is likely to accept the package.

The country will start formal talks with Russia on Tuesday in the hope of securing a loan worth as much as 4 billion euros ($5.35 billion) after approaches to western central banks and governments didn't yield any results, Prime Minister Geir Haarde said earlier this week.

To contact the reporters on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net;

Last Updated: October 12, 2008 09:38 EDT