April 12, 2013

Bailout cost for Cyprus balloons

Creditor banks say the country needs to put $8 billion more toward the rescue of its economy.

The Associated Press

BRUSSELS - The cost of bailing out Cyprus has swollen to 23 billion euros ($30 billion), with the crisis-hit country having to take on the lion's share of the measures needed to avoid bankruptcy, according to a draft document by the country's international creditors.

The draft document, obtained Thursday by The Associated Press, says the country will have to find 13 billion euros ($17 billion) -- an increase on the 7 billion euro ($9.1 billion) contribution agreed during the country's chaotic bailout talks last month. The money will be raised by imposing heavy losses on large bank deposits, levying additional taxes, privatizations and a part-sale of the central bank's gold reserves.

"The sheer size of the increase has underlined the extent of the enormous challenges facing Cyprus itself," Jonathan Loynes of Capital Economics said in an analyst note.

The so-called troika of international creditors - the European Commission, the European Central Bank and the International Monetary Fund - are set to grant the Mediterranean island nation 10 billion euros ($13 billion) in rescue loans to recapitalize its shaky banking system and keep the government afloat. For its side of the deal, Cyprus was supposed to contribute 7 billion euros to the rescue.

In the latest draft document, however, the troika has revised the overall cost of bailing out Cyprus amid a gloomier economic outlook for the country, adding an extra 6 billion euros to the bill.

The Cypriot government blamed the gulf between the original total and the new 23 billion euro bill on the previous left-wing administration and the time it took to properly negotiate a bailout -- delays that pushed the cost of recapitalizing its banks much higher.

Government spokesman Christos Stylianides accused former President Dimitris Christofias of failing to "take responsibility and complete indecisiveness" in promptly negotiating a bailout.

Meanwhile, the Cyprus government moved late Thursday to further loosen restrictions on access to accounts that were imposed last month to forestall a withdrawal rush by fearful savers.

A new decree, to remain in place for seven days, lifts all restrictions on transactions under 300,000 euros to re-energize cash-starved domestic businesses that had difficulty paying suppliers and employees. But a daily cash withdrawal limit of 300 euros remains in place, as well as a ban on cashing checks.

 

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