Fitch raises Iceland rating outlook despite Icesave 'no'

16th May 2011, Comments 0 comments

Ratings agency Fitch raised its outlook on Iceland's debt rating from "negative" to "stable" Monday, saying it did not think the rejection of a compensation deal for the failed Icesave bank would impact the country as negatively as initially feared.

The move marked Fitch's first positive rating change in five years on Iceland, which saw all its major banks go belly-up in the financial crisis at the end of 2008.

The ratings agency said it still believed it was important for Iceland to find a resolution to its dispute over Icesave with Britain and the Netherlands, who were forced to dish out a total of 3.9 billion euros ($5.5 billion) to reimburse some 340,000 of their citizens hit by the collapse of Icesave.

"However, the capacity of this dispute to close off access to multilateral and bilateral funding for Iceland's IMF financial rescue programme and put Iceland's economic recovery at risk has clearly diminished," Paul Rawkins, the senior director of Fitch's Sovereign Rating Group, said in a statement.

Fitch, which maintained its "BB+" rating on Iceland's longterm debt, pointed out that despite the Icelandic public's rejection of a repayment plan, Reykjavik has said it can reimburse between 90 and 100 percent of the money without tapping into tax-payer contributions, using the assets of Icesave's bankrupt parent company Landsbanki.

On April 9, about 60 percent of voters in a referendum rejected the Icesave deal approved by the government and parliament, just over a year after more than 93 percent of voters turned down a previous plan, in March 2010.

© 2011 AFP

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