UPDATE 1-Icelandic voters unlikely to approve Icesave deal

* Iceland holds referendum on debt to Britain, Netherlands

* Second referendum on issue in just over a year

(Adds comment, detail)

By Anna Ringstrom and Omar Valdimarsson

REYKJAVIK, April 9 (Reuters) – Icelanders began voting on
Saturday whether to approve a plan to repay debts to Britain and
the Netherlands with opinion polls suggesting another rejection,
dampening hopes for progress in the island’s economic recovery.

The plebiscite is on an agreement to repay a $5 billion debt
incurred after Britain and the Netherlands repaid depositors who
had lost money in online savings accounts. The “Icesave”
accounts were run by Landsbanki, one of three Icelandic banks
that collapsed in 2008.

Dispute over repayment soured relations between the small
North Atlantic island nation, whose economy went into deep
recession amid the bank crisis, and the two other countries.

Icelandic lawmakers in February backed the repayment plan
agreed with the creditors in December but the president refused
to sign the bill, triggering today’s referendum.

The three most recent opinion polls showed of those who had
made their decision, between 52 and 57 percent, oppose the deal
which the government says is better than one overwhelmingly
rejected in March 2010.

“It’s a defininte ‘no’,” said Kristjan Johansson, a
63-year-old opera singer. “There is no way we should be paying
for the debts of scoundrels still living in luxury.”

Jon Bergsson, a 38-year-old carpenter, on the way out from a
polling station in Reykjavik, said he had voted “no”. “This debt
has nothing to do with me,” he said.

The share of undecided votes is around 15 percent of those
who responded to opinion polls.

Prime Minister Johanna Sigurdardottir said on Thursday a
‘no’ vote would cause economic uncertainty for “at least the
next one to two years”, although her centre-left coalition has
not said it will resign if the vote goes against it.

Arni Sveinsson, a 34-year-old film director, will vote yes.
“Many Icelanders’ stance is very emotionally driven, they say
‘we have paid enough’. And I too don’t want to pay,” he said.

“But I want us to move forward, not be stuck in this limbo
for years more. The deal is fair in many ways and we need to
pick our fights. For Iceland to be taken seriously we need to
get past this,” he said.


Graphic, Iceland growth vs deficit:


Graphic, Iceland growth vs currency


Factbox on the Icesave dispute [ID:nLDE736171]



“We now have the option to settle this unfortunate affair
with dignity and honor, or to embark on a new journey into
uncertainty,” Finance Minister Steingrimur Sigfusson told
Iceland’s state broadcasting organisation late on Friday.

If Icelanders turn down the new Icesave deal, the dispute
may instead be solved in a European court, a solution some
economists say would be much costlier. [ID:nLDE64P26Q]

The referendum, in which 230,000 voters can take part, began
at 9 a.m. (0900 GMT) and ends at 10 p.m. (2200 GMT).

The government and economists say solving the Icesave issue
will help Iceland get back into financial markets to fund itself
after a financial rescue programme, led by the International
Monetary Fund, runs out this year.

It will also help the country of 320,000 people remove
controls on capital flows it imposed in 2008 to stabilise its
tumbling currency.

The controls have left an estimated 465 billion crowns
($4.10 billion), equivalent to a quarter of the island’s gross
domestic product, in the hands of foreign investors, many of
whom are expected to want to pull out as soon as capital
controls are lifted.

Iceland last month outlined a cautious plan to relax the
capital controls gradually, a process expected to take years.
The main steps will take place only once Iceland has shown it
can refinance loans in foreign credit markets. [ID:nLDE72O1Y8]
(Editing by Andrew Dobbie and Mike Nesbit)
($1=113.31 Iceland Krona)

UPDATE 1-Icelandic voters unlikely to approve Icesave deal