VZCZCXRO5988
PP RUEHIK
DE RUEHRK #0010 0121703
ZNR UUUUU ZZH
P 121703Z JAN 10
FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC PRIORITY 4260
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY

UNCLAS REYKJAVIK 000010 
 
SENSITIVE 
 
NOFORN 
 
SIPDIS 
 
TREASURY FOR SMART AND WINN 
NSC FOR HOVENIER 
SECDEF FOR FENTON 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EFIN IC
SUBJECT:  ICELAND WANTS IMF REVIEW TO TAKE PLACE ON SCHEDULE 
 
REF: Reykjavik 3 
 
¶1. (SBU/NF) On January 11, Minister of Finance Steingrimur J. 
Sigfusson called in CDA to express the Icelandic government's desire 
for the IMF review to take place as scheduled and to seek USG 
support within the IMF.  (Note: Prior to the President's refusal to 
sign the Icesave bill into law, the next IMF review was expected to 
take place in mid-January.  End note.)  Sigfusson stated that he was 
briefing key countries and, in fact, the Chinese Ambassador was next 
in line.  He noted that the government and parliament had done what 
was required by the IMF.  Further delay of the IMF program, he 
stated, would increase enormously the additional negative economic 
effects caused by the president's decision.  Although Iceland does 
not need funds urgently, he said, receiving the next tranche would 
help bolster confidence in the system.  Building up the reserves 
would also make it easier to implement the next phase of lifting 
capital controls and help stabilize the interest rate. 
 
¶2. (SBU/NF) Both Sigfusson and Prime Minister Johanna Sigurdardottir 
continue to reach out to their counterparts in the UK, Netherlands, 
and the Nordic countries.  Sigfusson just returned from a trip to 
Norway and Denmark, and has been in contact with British Chancellor 
of the Exchequer Darling and Dutch Finance Minister Bos, while 
Sigurdardottir has communicated with the British and Dutch Prime 
Ministers.  Sigfusson said that neither the UK nor the Dutch have 
shown any flexibility and continue to demand that Iceland honor the 
deal; however, all three countries remain committed to keeping open 
lines of communication. 
 
¶3. (SBU/NF) Sigfusson, contrary to media reports, expressed doubts 
regarding the possibility of enlisting a mediator or renegotiating 
the Icesave deal.  Although the GOI will not exclude these 
possibilities, it is moving forward in anticipation of the 
referendum and plans to argue for a "yes" vote from the electorate. 
It is also unlikely, he said, that the GOI would consider recalling 
the bill, thus negating the need for a referendum, without a 
realistic option on the table. 
 
¶4. (SBU/NF) Sigfusson acknowledged that the President's decision 
injected additional political uncertainty into the situation. 
Although he would not categorically state whether or not the ruling 
coalition would fall should the Icesave referendum fail, he admitted 
that the Icesave issue will likely hurt the coalition's chances for 
reelection. 
 
¶5. (SBU/NF) CDA expressed continued USG support for Iceland's IMF 
program and reiterated the USG's position of neutrality and desire 
for a speedy resolution regarding the Icesave issue.  Sigfusson was 
pleased to hear that details of the meeting would be shared with 
Treasury and indicated a desire to speak directly with DAS 
Christopher Smart about Iceland's IMF program. 
WATSON