UPDATE 1-Iceland can pay bill in Icesave court case – cbank

* Icelanders reject deal to repay debt to British, Dutch

* Dispute now seen solved in EFTA court

* Cbank chief: econ. effect depends much on ratings

* IMF: ‘no’ unlikely to jeopardize economic stability

* Fitch says ‘no’ reduces prospect of higher rating

By Anna Ringstrom

REYKJAVIK, April 11 (Reuters) – Iceland can pay whatever
bill results from court action over debts owed to Britain and
the Netherlands from a bank crash, the country’s central bank
chief said a day after Icelanders rejected a negotiated
repayment plan.

In a referendum on Sunday Icelanders voted for a second time
to throw out a plan to repay Britain and the Netherlands for
bailing out depositors in failed Icelandic bank Landsbanki’s
online “Icesave” savings accounts. [ID:nLDE73900H]

Proceeds from the sale of Landsbanki assets will go to
paying back Britain and the Netherlands, starting in the coming
months.

Whether Icelandic taxpayers risk having to foot any
remaining bill after that is now likely to be settled in a
lengthy European Free Trade (EFTA) court. Economists have said
the court route could be costlier than the rejected deal.

“I expect Iceland to be able to pay … in case the court
rules that there is an obligation,” Sedlabanki Governor Mar
Gudmundsson told Reuters in an interview. [ID:nLDE73A27L]

He said the effect of the “no” vote on Iceland’s economy,
which went into deep recession after the 2008 bank crash, would
depend to a large extent on whether credit rating agencies
lowered their ratings on the news.

Iceland’s economy has stabilised with the help of an
International Monetary Fund-led rescue programme.

But the recovery is fragile and the ‘no’ vote may leave the
country facing delays ending currency controls, boosting
investment and returning to financial markets for funding.

But IMF Iceland resident representative Franek Rozwadowski
said the ‘no’ vote is unlikely to jeopardize economic or
monetary stability in Iceland, as quoted by Frettabladid
newspaper on Monday.

He said the debt repayment to the British and the Dutch was
not a condition for the IMF programme, although the fund had
seen a solution as important for the economic recovery of
Iceland.

Credit rating agencies have been watching the Icesave vote
closely and Fitch said on Monday the result reduces the prospect
of it raising its junk rating on Iceland to investment grade in
the relatively near future.[ID:nWNA5886]

Moody’s had said it might lower Iceland’s rating in case of
a ‘no’.

Britain and the Netherlands said on Sunday they were
disappointed over the outcome, and British newspaper The
Independent said it increased the chances Britain or the
Netherlands, both European Union members, might veto Iceland’s
bid to join the bloc.

The Financial Times said that besides highlighting flaws in
European cross-border banking rules, the case raised doubts over
the future of Iceland’s centre-left government, which has said
it will not resign despite the defeat.

The governemnt of Johanna Sigurdardottir has said a fresh
round of talks on further funding from the IMF would be delayed
several weeks.

Sedlabanki’s Gudmundsson said Iceland has enough foreign
exchange reserves to cover debts up to 2015.

“And long before 2015, the EFTA court will have ruled on the
Icesave dispute one way or the other. And then we will know if
there is an (Icesave debt repayment) obligation or not,” he
said.
(Additional reporting by Omar Valdimarsson in Reykjavik,
Patrock Lannin in Stockholm and Karolina Tagaris in London;
editing by Philippa Fletcher and Andrew Callus)
($1=113.31 Iceland Krona)
($1=.6103 Pound)

UPDATE 1-Iceland can pay bill in Icesave court case – cbank