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Russia Has No Plans to Give Cyprus Loan on Risk, Storchak Says

Russia has no plans to grant a 5 billion-euro ($6.6 billion) loan requested by Cyprus because the risks are too great to be assumed by a single creditor, Deputy Finance Minister Sergei Storchak said.

“We have no specific plans or instructions to do so,” Storchak said in a Dec. 24 interview in Moscow. “It’s obvious that no single creditor can work with Cyprus alone,” he said. “Anyone who steps up on an individual basis to finance that country’s government or to help recapitalize its banks would be taking an enormous risk.”

Cyprus, whose public debt is forecast to reach 89.7 percent of gross domestic product this year, in late June became the fourth euro-area nation to request a financial rescue since a 2010 bailout of Greece. In addition to seeking aid from its euro-zone partners and the International Monetary Fund, Cyprus asked Russia for a fresh loan after borrowing 2.5 billion euros last year.

A bailout deal with the euro area and IMF will be signed by Feb. 12, Kathimerini reported on Dec. 22, citing Thomas Wieser, who heads the group of officials that prepare meetings of euro-area finance ministers. Cyprus may need as much as 17.5 billion euros, almost the size of its economy, to pay its bills and recapitalize banks, Finance Minister Vassos Shiarly said on Nov. 22.

Russia would consider giving financial assistance to Cyprus as a part of international rescue package after the euro area takes a unified stance on aiding the island, President Vladimir Putin said on Dec. 21 in Brussels.

Communist President

“While we don’t exclude taking part, as the president said, we’re not major creditors,” said Storchak, who oversees Russia’s debt and international financial cooperation. If a group of lenders were formed to help Cyprus, it would be based on Cyprus’s membership in the European Union, he said.

Russia’s current loan to Cyprus, which matures in 2016, was intended to help communist Cypriot President Demetris Christofias stabilize his government’s finances. Cypriot lawmaker Stavros Evagorou said on Oct. 13 that the government was seeking to extend the loan.

Bilateral financial lending to foreign states should be treated as a commercial transaction, where the creditor expects to be repaid, Storchak said. More often, countries seeking financial assistance are in need of grants, though politicians are reluctant to say so openly, he said.

Russia will also refrain from lending to Syria, which is mired in a civil war and is unlikely to meet any long-term financial commitments, Storchak said. “Offering loans would be somewhat exaggerating the given borrower’s ability to repay in the current circumstances.”

Civil War

Syrian Deputy Prime Minister Qadri Jamil, who oversees the country’s economic affairs, led a delegation to Russia in August. Syria has asked its Soviet-era ally for financial assistance, though the Finance Ministry isn’t involved in official talks, Storchak said. More than 44,000 people have died in the war since March 2011, according to the U.K.-based Syrian Observatory for Human Rights.

“Giving this loan would mean closing our eyes to the prospects of those who are in power there now. They have big problems, a civil war,” Storchak said. “In terms of ways we might help, humanitarian aid should be the first priority, while some form of grant would be second.”

Iran, which has been hit by U.S. and EU sanctions, hasn’t sought any Russian financial assistance, Storchak said. “Of course they feel uncomfortable. Isolation takes its toll. Our financial agencies have almost no interaction.”

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