Early results: Iceland rejects debt repayment deal

  • Sat Mar 6th, 2010 5:25pm
  • News

Associated Press

REYKJAVIK, Iceland — Still furious over the crippling aftermath of the global financial crisis, Iceland’s voters today resoundingly rejected a $5.3 billion plan to pay off Britain and the Netherlands for debts spawned by the collapse of an Icelandic Internet bank, according to initial results.

Results returned from around 83,500 ballots — or more than 40 percent of the total ballots expected — counted so far showed that 93 percent of voters said “no” in the referendum, compared to just 1.5 percent who said “yes.” The rest were invalid ballots.

Icelanders were deciding whether to back a plan outlining the payment of $3.5 billion to Britain and $1.8 billion to the Netherlands as compensation for funds that those governments paid to around 340,000 of their citizens who had accounts with the collapsed bank Icesave, an Icelandic Internet bank that offered high interest rates before it failed along with its parent, Landsbanki.

Many voters object to the tough terms of the deal imposed by the debtor countries, not the idea of payment itself.

“This result is no surprise,” Prime Minister Johanna Sigurdardottir said. “Now we need to get on with the task in front of us, namely to finish the negotiations with the Dutch and the British.”

The initial referendum results are indicative of how angry many Icelanders are as the tiny island nation struggles to recover from a deep recession. The global financial crisis wreaked political and economic havoc on Iceland, as its banks collapsed within the space of a week in October 2008 during the credit crunch and its currency, the krona, plummeted. The Icelandic government was the first to fall as a result of the meltdown.

Final results of the referendum are not available until Sunday, though they are expected to be largely in line with the results so far.

The vote could jeopardize Iceland’s credit ratings, making it harder to access much-needed funding to fuel an economic recovery. Unemployment has surged since the crisis began, to about 9 percent in January, and inflation is running at about 7 percent annually, while the island’s economy continues to shrink.

Icelandic authorities have recently been in talks with Britain and the Netherlands to come up with a better deal to try to avert Saturday’s referendum, which was forced by the refusal of Iceland’s president to agree to the so-called Icesave bill.

Last-minute talks between the three countries broke down this week, despite the debtor countries saying they offered better terms for a new deal — including a significant cut on the 5.5 percent interest rate in the original deal hammered out at the end of last year.

The British say their “best and final offer has been turned down,” but Iceland’s Foreign Ministry said late today it remained confident a solution acceptable to all parties can be achieved.

The debt owed to Britain and the Netherlands is a small sum compared to the massive amounts spent to rescue other victims of the global meltdown — $182.5 billion was paid out to keep U.S. insurance giant American International Group Inc. alive — but many taxpayers in the country of just about 320,000 say they can’t afford to pay it.

The deal would require each person to pay around $135 a month for eight years — the equivalent of a quarter of an average four-member family’s salary.

Locals see the deal as an unfair result of their own government’s failure to curtail the excessive spending of a handful of bank executives that led the country into its current malaise.

“I said no,” said Palmar Olason, 71, at a polling station. “We should get a better deal,” he said.

Britain and the Netherlands have been pushing hard for repayment and there have been fears that they will take a hard-line stance on Iceland’s application to join the EU and refuse to approve the start of accession talks until an Icesave deal is signed into law.

About 1,000 Icelanders gathered to protest in downtown Reykjavik today, demanding a better say in the issue. Many ordinary Icelanders resent forking out the money to compensate for losses incurred by potentially wealthier foreign investors who chased the high interest rates offered by Icesave.

There’s also residual anger that Britain invoked anti-terrorist legislation to freeze the assets of Icelandic banks at the height of the crisis, prompting the worst diplomatic spat between the two countries since the Cod Wars of the 1970s over fishing rights in the North Atlantic.

President Olafur R. Grimsson tapped into the public anger and used a rarely invoked power to refuse to sign the so-called Icesave bill after it was passed by parliament in December.

Since then, opinion polls indicated that a strong majority intended to reject the plan. The Social Democrat-Left Green coalition government and the center-right opposition say the country could get better terms in negotiations with Britain and the Netherlands.

“I voted no,” said Rognvaldur Hoskuldsson, a 36-year-old machine technologist, after casting his vote Saturday morning. “We have to send a message that these countries are not going to profit from this situation.”

Although the International Monetary Fund has never explicitly linked delivery of a $4.6 billion loan to the reaching of an Icesave deal, it is committed to Iceland repaying its international debt — the months taken to reach the original Icesave deal were responsible for holding up the first tranche of IMF funds last year.