The Cypriot government announced that the negotiations with the troika on the formulation of the country’s adjustment program ended with the involved parties having concluded on the program. The Cypriot fiscal position is expected to move from a 2.4% primary deficit in 2013 to 1.2% surplus by 2016 and 4% thereafter.
The government will undertake a series of measures to this respect that include a privatization program and increased taxation (alcohol, tobacco, VAT rate, and corporate tax rate and capital income taxation). The country is schedule to receive up to EUR 10bn with a 2.5% interest and expected to be paid back over a period of 22 years.
Upon the finalization of the negotiations, Mr. Sarris resigned as Finance Minister while also announcing that certain capital restrictions measures will be eased, particularly the commercial trade cap of EUR 5k per month will be raised to EUR 25k.
Statement on Cyprus by Olli Rehn and Christine Lagard
The Cypriot authorities have put forward a multi-annual reform programme to address the economic challenges facing the country. Its goals are to stabilize the financial system and achieve fiscal sustainability in order to lay the foundations for a recovery of economic activity and the growth potential that will preserve the longer-term prosperity of the population.
The programme builds on important steps already taken by Cyprus to address the problems in the two largest banks and includes a set of measures aimed at ensuring a stable, sustainable and transparent financial sector.
While the Cypriot government has already adopted important fiscal consolidation measures, the programme entails a well-paced fiscal adjustment that balances short-run cyclical concerns and long-run sustainability objectives, while protecting vulnerable groups. The social welfare system will be reviewed with the view to ensuring sustainability and social fairness.
The programme puts forward comprehensive structural reforms to set the conditions for growth and job creation.
Significant challenges lie ahead for Cyprus. The European Commission and the International Monetary Fund stand by Cyprus and the Cypriot people in helping to restore financial stability, fiscal sustainability and growth to the country and its people.
The Cypriot presser
The Government Spokesman Mr Christos Stylianides, the Minister of Finance Mr Michalis Sarris, the Minister of Commerce, Industry and Tourism Mr George Lakkotrypis, and the Minister of Education and Culture Mr Kyriakos Kenevezos, gave a joint press conference today, at the Presidential Palace, to announce the improvements that have been achieved in the negotiations with the Troika regarding Cyprus adjustment program.
Replying to questions, Mr Sarris said that “I want to underline the great importance of reaching this agreement so that the process of approval by the institutional organs, by the Eurogroup and by the Parliaments will start, in order for the financing of the adjustment program of Cyprus to start in early May.”
He pointed out that “the next few months will be difficult for all of us. We will go through a tough period. But our hopes are uplifted. At some point in time that cannot be specified, there will be the beginning of the recovery of the economy and the return to good economic growth rates.”
He added that “the year 2013 will be a very difficult one, while the beginning of 2014 will be difficult. Beyond that period, however, I believe that there will be positive prospects.”
Responding to a question, Mr Sarris said that the arrangement with the Banks depends on the relationship of the Bank with the customer. A period of 60 days is provided and the Banks must be predisposed to show understanding with regard to the difficulties faced by the loan recipients in fulfilling their obligations.
Invited to say if the restrictions imposed on the depositors will be lifted, Mr Sarris said that our view is that the restrictions should be relaxed as soon as possible. He said that a gradual relaxation of restrictions has already begun.
He said “there were important provisions reached in this Memorandum that were achieved due, for example, to the strong argumentation by the Government that it is best for the adjustment to take place more gradually. The optimism for the economy has been restored. There is a positive prospect of investments in energy and in natural gas. These adjustment will allow us to be optimistic for better days to come with no additional sacrifices.”
Asked if he has resigned from the Ministry, Mr Sarris said that “I assumed the Ministry of Finance in order to assist in our task, with the achievement of an agreement on the Memorandum as the primary goal. I believe that through a lot of hard work this has been achieved. In addition, the time period that the Investigative Committee- set up by the President of the Republic – will investigate, covers also the period of time during which I was the President of the Board of the Popular Bank. I personally thought that in order to facilitate the work of the Committee it would be appropriate for me to hand in my resignation to the President, and that is what I did.”
Asked if the loan agreement reaches 10 billion euro, if the payment will begin in ten years and if the interest rate will be 2,5%, the Government Spokesman said that “the interest is between 2,5% and 2,7%, which under the circumstances and given the interest rate for previous loans, is a very favorable rate at least in comparison. The people of Cyprus, as they also proved in 1974, have the sound judgment and the tenacity to deal with this crisis and have what it takes to lead the economy to normality soon. Yesterday’s event ‘Cyprus aid’ proved that the reserves of strength of the people are much more than some people have imagined.” He added that the time period of payment of the loan will be 12 years.
Replying to another question, Mr Stylianides said that the government examines closely the geopolitical changes occurring in the region. “The government knows very well that there are possibilities for it to play its own important role in the region,” he said and noted that “the Ministers of Foreign Affairs, and Commerce, Industry and Tourism, will be visiting Israel soon, and will be followed by a visit by the President of the Republic to Israel.”
He added that the government has its own strategic planning based on the changes that have occurred recently and emphasized once again that the Republic of Cyprus has the exclusive and absolute sovereign right to fully exploit the hydrocarbons reserves.
On his part the Minister of Commerce, Industry and Tourism Mr Lakkotrypis said that “we succeeded in ensuring that the revenue from natural gas will be managed by the Republic of Cyprus and that the planning for developing and exploiting our natural wealth will be under the jurisdiction of the Cyprus government.”
On his part Mr Kenevezos said that Cyprus “has succeeded in reaching with the Troika counter-balancing measures of infrastrure that relate to the Ministry of Education.”