The Government of Iceland remains fully committed to honour Iceland's obligations

Main points:

• A referendum is expected to take place late February.
• The Government of Iceland remains fully committed to implementing the bilateral loan agreements with the UK and the Netherlands.
•  The Government views the loan agreements with the UK and the Netherlands as an integral part of Iceland‘s economic program.
   

The Government of Iceland remains fully committed to honour Iceland´s obligations in the Icesave dispute with UK and the Netherlands. It has decided to hold a national referendum on the so-called Icesave legislation, following broad consultations with both coalition and opposition parties as well as employers' associations and labour unions. The referendum is expected to take place late February. Iceland´s Althingi (Parliament) will reconvene on Friday 8 January after the Christmas recession to prepare legislation for the referendum, as these specifics are not provided for by the Constitution.

As stated by Prime Minister Johanna Sigurdardottir on Tuesday 5 January, the Government of Iceland remains “fully committed to implementing the bilateral loan agreements with the UK and the Netherlands” and thus the state guarantee provided for by the law. Iceland has been in close contact with the Governments of the UK and the Netherlands, other partner countries and the EU and the International Monetary Fund (IMF), to inform counterparties about the latest developments and explain the process triggered by the decision announced by the President on Tuesday.

Integral part of economic program

The Government views the loan agreements with the UK and the Netherlands as an integral part of Iceland´s economic program. The economic recovery plan, developed in cooperation with and supported by the IMF and with financing from the Fund and governments of the Nordic countries and Poland, remains in effect. Important steps have been taken in recent months towards rebuilding confidence in the economy and establish renewed economic growth.

Additional facts:

• An ambitious austerity program has been adopted, which will ensure the attainment of the government‘s goal of balanced budget by 2013 through both spending cuts and tax hikes.
• The commercial banking system has been fully capitalised. An extensive revision of the financial market regulatory framework is being carried out.
• Major debt restructuring is ongoing for Icelandic individuals and firms.
• Various initiatives to guarantee partial payment relief for households have been adopted.
• Legislation was adopted giving access to tax sheltered voluntary pension savings in order to increase households' spending power.
• The Central Bank has taken first steps towards lifting capital controls.
   

Legislation approved by Althingi

The Icesave legislation, approved by a majority of the Icelandic Parliament on 30 December 2009, authorises the Minister of Finance to issue a state guarantee for repayment of loans provided by the UK and the Netherlands to the Icelandic Depositors‘ and Investors‘ Guarantee Fun. The loans are intended to cover payment of the minimum deposit guarantees to depositors in the UK and Netherlands branches of a failed private bank, Landsbanki Islands hf.

Approved or rejected by a simple majority

In spite of the President's deferment of the Icesave legislation, it has nevertheless taken effect. Article 26 requires the law to be submitted to a vote by secret ballot of all eligible voters, to be approved or rejected by a simple majority. The law shall become null and void if rejected, but otherwise remains in force. This provision was adopted into the Constitution when the Republic was established in 1944. It had not been made use of until 2004, when the current President rejected for the first time a new legislation limiting the concentration of media ownership. That legislation was later repealed by the Parliament and a referendum never took place.