Iceland won't risk int'l relations over Icesave

Iceland will do its utmost to meet its obligations to Britain and the Netherlands and to ensure the Icesave affair does not harm international relations, its prime minister wrote in a Dutch newspaper on Thursday.

"The Icesave dispute cannot frustrate our long term cooperation with the IMF or the accession process to the European Union" Prime Minister Johanna Sigurdardottir said in a letter translated into Dutch in financial daily Het Financieele Dagblad.

Iceland's president refused earlier this month to sign a bill on repaying more than $5 billion (3 billion pounds) that Britain and the Netherlands have paid out to compensate savers who lost deposits in so-called Icesave accounts in a banking crash in late 2008.

Sigurdardottir said Iceland's people, who will vote in a referendum on the law on March 6, are disgruntled that its banks were able to expand internationally without Icelandic, Dutch and UK supervisors protecting against risk.

They are also unhappy at the repayment terms set out in the bill. "A large majority would prefer more reasonable repayment conditions" Sigurdardottir said.

The Icelandic government is committed to continue the economic recovery programme as agreed with the International Monetary Fund and some European countries, she said.

Dutch Finance Minister Wouter Bos said on Tuesday he was reassured by repeated comments by Iceland that it would honour its obligations, regardless of the referendum's outcome.

But he also stressed what was at stake for Iceland, including international financial support to help it emerge from the credit crisis. The IMF has suggested its hands might be tied by the debt dispute.

"Preparations for the negotiations about Iceland's accession to the European Union, which we hope can start later this year, will be continued" Sigurdardottir said.