The US government enthusiastically welcomed the IMF arrangement, as well as an 11-billion-dollar debt exchange agreement between Baghdad and commercial creditors who were owed money by the ousted regime of Saddam Hussein.

Both developments should help Iraq win billions more in credit from both sovereign and commercial lenders as it tries to establish a functioning democracy in the face of a bloody insurgency.

"The Iraqi authorities were successful in promoting macroeconomic stability in 2005, despite the extremely difficult security environment," IMF deputy managing director Takatoshi Kato said in a statement.

The IMF last year awarded a "post-conflict programme" worth 436 million dollars to help Iraq negotiate a morass of claims by government and private creditors who were owed money by the Saddam government.

That programme was due to expire at the end of this year, and Iraq's authorities have been in negotiations for months to obtain a formal standby loan to have access to millions more in IMF funds if needed.

But in return, the IMF had called on Iraq to reduce its generous oil subsidies, improve its economic data and shed more light on the resources given to its central bank.

"The medium-term outlook for Iraq is favourable, but subject to many risks," Kato said.

"A strengthening of the security situation will help the authorities to implement the (economic) programme," he said.

"Moreover, Iraq remains vulnerable to shocks, particularly those relating to oil production development and oil export price movements."

US Treasury Secretary John Snow welcomed the financial boost given to Baghdad.