The ratings on Iceland are constrained by high external and public sector debt burdens that we believe could become heavier still, if not for capital controls limiting both residents' ability to invest overseas and nonresidents' ability to exchange krona holdings for foreign exchange. The ratings are supported by what we view as the flexibility of the country's relatively prosperous and flexible economy and by the institutional capacity to address its financial sector problems and build an environment more conducive to sustainable economic growth. We expect Iceland to rely on official funding to close its external financing gap this year. Although the Icelandic electorate rejected, for a second time, the government-negotiated Icesave agreement with the U.K. and the Netherlands at a
