Iceland welcomed a decision by the International Monetary Fund (IMF) on Wednesday to release the second installment of a loan to aid its economic recovery.

- We welcome this milestone which is a significant acknowledgement of the progress made in our economic policy and in the revitalisation of our financial system over the last few months - Icelandic Economic Affairs Minister Gylfi Magnusson said in a statement.

- We fully expect that the trust of international financial markets will continue to grow as a consequence - he said.

The 167.5-million-dollar (113.8-million-euro) loan is the second installment of a two-year agreement and brings the total received to 1.061 billion dollars.

The IMF fast-tracked a 2.1-billion-dollar loan to Iceland in November 2008, one month after the collapse of the country's booming financial sector.

That catastrophic failure pushed the country to the brink of bankruptcy and forced the government to take control of the biggest banks as the currency nosedived.

Iceland was the first Western European country to be rescued by the IMF since Britain in 1976.