IMF: Iceland's risk from Icesave dispute 'limited'

Iceland's government faces limited financial risks from the failure of online bank Icesave, the International Monetary Fund said Thursday. Iceland's prime minister, Johanna Sigurdardottir, announced in April that the country would begin to repay Britain and The Netherlands for money they spent on compensating 340,000 of their citizens who lost money when Icesave collapsed in 2008. The government intends to use the proceeds of asset sales of bankrupt Icelandic bank Landsbanki, Icesave's parent company, to repay the debt. "Asset recovery from Landsbanki's estate is expected to cover a significant portion of the Icesave deposits, which limits the financial risk faced by the government," the IMF said in a statement. However, the IMF emphasized that the final cost for Iceland remained to be determined. On April 9, about 60 % of voters in a referendum rejected the Icesave deal approved by the government and parliament. The dispute is now in the hands of the European Free Trade Association. "Uncertainty about the possible impact of Icesave on public and external debt has increased given that the dispute will now be settled via a legal process," the IMF said. The Washington-based institution announced it had reached a preliminary agreement with Iceland on the conditions for the release of a sixth installment of a $2.1 billion loan extended in October 2008 as the global financial crisis escalated.