Financial Regulatory Forum

Iceland says has new repayment deal with UK, Holland over deposit losses

October 19, 2009

Iceland's Prime Minister Johanna Sigurdardottir smiles before a vote on the controversial "Icesave bill" in Reykjavik August 28, 2009. (File Photo) REUTERS/Ingolfur Juliusson By Omar Valdimarsson
REYKJAVIK, Oct 18 (Reuters) – Iceland said on Sunday it had agreed to a new deal to repay Britain and the Netherlands billions of dollars of deposits lost when the island’s banks collapsed in 2008, paving the way for new aid from international lenders.

Iceland passed a law in August to repay money lost in high-interest “Icesave” accounts, but Britain and the Netherlands balked at the terms, holding up aid from the International Monetary Fund (IMF) and other lenders for the island’s stricken economy.

Prime Minister Johanna Sigurdardottir said the new deal would have a number of positive effects, including helping Iceland remove currency restrictions — put in place at the height of the crisis — and to ease interest rates.

It should also get international financial aid flowing again.

“I predict the IMF review will take place by the end of the month,” Sigurdardottir said at a press conference.

When the bill is passed, Iceland, Britain and the Netherlands will issue a statement about the deal that will also include British and Dutch backing for the IMF review, the government said.

Dutch Finance Minister Wouter Bos said on Monday his country’s government expects a “positive signal” from the International Monetary Fund on support for Iceland after the deal.

The deal has been accepted by Iceland’s cabinet and the two parties in the coalition, and the government said the new bill would go before parliament on Oct. 19.

Iceland’s banks collapsed in late 2008 at the height of the credit crunch and its economy has imploded, leaving it dependent on a $10 billion aid package headed by the IMF.

After initial payments, money has been held up by squabbles over the Icesave issue.

Britain and the Netherlands objected to terms in the original law that meant the Icelandic government’s repayment guarantee ran out in 2024.

Under the new terms, should the money not be repaid by that date, the repayment period will be extended in five-year blocks.

Britain and the Netherlands have agreed that Iceland can seek a court ruling as to whether its Depositors’ and Investors’ Guarantee Fund has first claim on whatever is recovered from collapsed bank Landsbanki, whose depositors in Britain and the Netherlands had to be bailed out by the two states.

(Reporting by Omar Valdimarsson, via Stockholm newsroom; editing by Maureen Bavdek) ((simon.c.johnson@reuters.com; Reuters Messaging: simon.c.johnson.reuters.com@reuters.net; tel: +46 8 700 1045)) Keywords: ICELAND/

Sunday, 18 October 2009 14:25:01RTRS [nN18327939] {C}ENDS

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