Finance and Economic

Iceland’s government will meet opposition lawmakers today, seeking consensus over a U.K. and Dutch proposal to amend the terms of a loan covering foreign depositor claims that led to a souring of international relations and stalled payments of the island’s bailout.

“I can’t comment on the specifics of the offer we received, although I can say that it’s worth consideration,” said Foreign Minister Ossur Skarphedinsson in a phone interview yesterday. Prime Minister Johanna Sigurdardottir told broadcaster RUV on Feb. 20 the new offer significantly reduced the burden on Iceland.

One option is a floating interest rate instead of the 5.5 percent rate set when the $5.3 billion loan agreement was made in October and an interest-rate holiday may also be considered, according to government officials on Feb 19. They declined to be identified because the proposals have not been made public.

The new rate will make it cheaper for Iceland to repay a loan granted to cover deposits at failed Landsbanki Islands hf’s Icesave Internet bank. Iceland has been trying to restore relations with the British and the Dutch after President Olafur R. Grimsson blocked a bill intended to compensate the two countries. That rejection means the legislation will be put to a March 6 referendum, which most polls show Icelanders will reject.

It’s unlikely the government will try to introduce any new proposal to the parliament, unless it enjoys a wide political consensus, Skarphedinsson said yesterday.

“A proposal that has the backing of a strong majority in parliament is unlikely to be opposed by Iceland’s president,” he said.

‘Hang On’

After last night’s meeting, Sigurdardottir said she would “hang on to the hope of reaching an agreement, until something else is revealed.”

Standard & Poor’s has said it may follow Fitch Ratings decision, made when the bill was suspended, to cut Iceland’s credit grade to junk. Sigurdardottir previously signaled her government wanted to renegotiate the bill before it’s put to a vote.

The suspension of the Icesave bill, named after the high- yielding Internet accounts offered by failed Landsbanki, has put in question the continuation of Iceland’s $4.6 billion International Monetary Fund-led loan.

While the IMF has said continued disbursement of its $2.1 billion portion of the emergency loan isn’t linked to Icesave, the fund can’t provide installments without financing from contributing nations. Nordic countries that are providing $2.5 billion have indicated they want Icesave resolved before they resume payment.

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