Depositor bill veto hurting the economy, says Iceland
ICELAND'S government says it sees no immediate political solution to contain the fallout of President Olafur R Grimsson's decision to veto a depositor bill that had sought to repair UK and Dutch diplomatic relations.
"The reaction of the international community has been very harsh and the decision is already causing us severe economic difficulties," Economy Minister Gylfi Magnusson said yesterday. "However, there's no immediate solution available at the moment; there's nothing that we are working towards behind the scenes."
The veto threatens to stall an economic resurrection that Iceland's Social Democrat, Left Green government had toiled over for a year. Mr Grimsson's January 5 announcement prompted Fitch Ratings to downgrade Iceland, while Standard & Poor's ratings the same day said it may lower its BBB-rating more than one level to non-investment grade.
The news sent credit default swaps on Iceland's debt to the highest since August last year on concern it be headed for default. Iceland's $2.1bn (€1.46bn) International Monetary Fund loan, with a further $2.5bn pledged by Sweden, Denmark, Norway and Finland, has been shelved because of Mr Grimsson's decision to block the depositor accord, Mr Magnusson said. And he doesn't expect a review scheduled for this month to take place. "The IMF can't move onwards with the programme unless the financing is in place," he added.
The veto also puts in peril central bank plans to ease capital controls, and will probably prevent the central bank from cutting interest rates further. (Bloomberg)