I think Iceland President Olafur Ragnar Grimsson is doing right....

Source :WALL Street Journal

Less than two weeks after easing the threat of a downgrade, Fitch Ratings moved one of Iceland's key ratings into junk territory after the country's president vetoed a bill that would reimburse the U.K. and Netherlands for bailing out depositors of a failed Icelandic bank.

Fitch lowered Iceland's long-term foreign- and local-currency issuer default ratings by one notch to BB+ and BBB+, respectively. BBB- is the first step into speculative territory. The outlooks on the ratings are negative, meaning further downgrade is possible.

Iceland President Olafur Ragnar Grimsson on Tuesday cited massive public opposition in his decision to reject the bill. The presidential veto is only the second to happen since Iceland gained its independence from Denmark in 1944. Iceland's parliament in December voted 33-30 to approve the payback.

"Today's decision by Iceland's president to refer the Icesave agreement to a referendum creates a renewed wave of domestic political, economic and financial uncertainty," said Paul Rawkins, senior director of Fitch's sovereigns team in London. "It also represents a significant setback to Iceland's efforts to restore normal financial relations with the rest of the world."

The U.K. and Netherlands partially compensated more than 320,000 depositors in the Icesave branch of failed Icelandic bank Landsbanki. Icesave had attracted depositors with high interest rates but failed in October 2008 as the global credit crunch hit. After compensating depositors, the two countries turned to Iceland for the money to be returned.

Both Fitch and Standard & Poor's Ratings Service had recently said they were less likely to lower Iceland's credit rating after the payback plan passed parliament.

 
   -By Nathan Becker, Dow Jones Newswires; 212-416-2855; nathan.becker@dowjones.com;