07.01.2010

Icelandic Government prepares to submit the Icesave legislation for approval by national referendum and remains fully committed to honor Iceland's obligations with respect to depositor's insur

  • 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 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 labor unions. The referendum is expected to take place late February.

As stated yesterday by Prime Minister Johanna Sigurdardottir, 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 IMF, to inform counterparties about the latest developments and explain the process triggered by the decision announced by the President on Tuesday.

The Government views the loan agreements with the UK and the Netherlands as an integral part of Iceland‘s economic program. The government’s economic recovery plan, developed in cooperation with and supported by the International Monetary Fund and with financing from the IMF and governments of the Nordic countries and Poland, remains in effect.

Numerous important steps have been taken in recent months towards rebuilding confidence in the Icelandic economy and establishing a clear path towards renewed economic growth.

  • 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 and an extensive revision of the financial market regulatory framework is being carried out.
  • Major debt restructuring is ongoing for 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.

The so-called 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 Fund, 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.

Yesterday, the President of Iceland declined to sign the law according to Article 26 of the Icelandic Constitution and referred the matter to a national referendum. The Icelandic Parliament has been called into session on Friday 8 January 2009 to debate and to pass a legislation on the timing and organization of the national referendum as these specifics are not provided for by the Constitution.

In spite of the President's deferment of the Icesave legislation, it has nevertheless taken effect, but 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. The provision was adopted into the Constitution when the Republic was established in 1944, but had not been made use of until 2004, when the current President rejected for the first time in history a legislation limiting the concentration of media ownership. That legislation was later repealed by the Parliament and a referendum never took place.

Reykjavík January 6th 2010



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