March 28 (Bloomberg) -- The International Monetary Fund defended the agreement reached this week to bail out Cyprus, saying it had the support of all parties involved and will help the country develop a healthier economy over the long term.
“The adjustment that the plan will entail as the financial sector downsizes and the economy adjusts accordingly will be a difficult process for the Cypriot people over some period of time -- we are mindful of that,” Gerry Rice, the IMF’s director of external affairs, told reporters today in Washington. “But it will ultimately result in an economic model that is more sustainable and growth promoting.”
An IMF board decision on the lender’s contribution to the program isn’t expected before the end of April, Rice said. Fund staff members are in Cyprus trying to complete the technical details along with teams from the European Commission and the European Central Bank, he said.
Cyprus’s banks today opened for the first time in almost two weeks with new rules curbing access to cash following the March 25 agreement that shut Cyprus Popular Bank Pcl, the second-largest lender, and imposed larger losses on uninsured depositors.
President Nicos Anastasiades thanked Cypriots for maintaining calm as banks opened, with many savers heeding the government’s call for citizens not to rush to banks or seeking to avoid potential chaos.
Rice said Slovenia, where a pledge of austerity measures failed to stem a rise in bond yields to record highs as investors worry the Alpine nation will follow Cyprus in asking for a bailout, is a “completely different” case from the Mediterranean island.
“The loans to the construction sector and leveraged buyouts are now weighing down on the banks’ earning and capitalization,” he said. “The authorities are determined to address the problem with a clear plan.”
Slovenian Prime Minister Alenka Bratusek, in her first major policy speech since taking office, told Parliament yesterday that her week-old government would rebuild ailing banks and improve state finances that are in “bad shape” so the country won’t become the sixth euro member to need aid.
European Union officials are striving to contain a debt crisis that prompted Cyprus to join Greece, Portugal, Ireland and Spain in agreeing on a bailout. Bratusek’s lack of specifics on how to avoid foreign support helped push the country’s benchmark dollar-denominated bonds to an all-time high at a time when Slovenia is looking to tap bond markets.
Asked whether the rescue for Cyprus could be a model for other countries facing a financial crisis, Rice said, “the case of Cyprus was very complex and unique in nature and it would be difficult to extend the case to Europe or the rest of the world.”
Lenders on the Mediterranean island had been closed since March 16, when the EU presented a proposal to force losses on all depositors in exchange for a 10 billion-euro ($12.8 billion) bailout. That plan touched off protests and political upheaval, and was rejected by the country’s parliament, leading to this week’s plan.
“The agreement reached in Brussels I think deals with these challenges up front and focuses on dealing with the two problem banks, and fully protecting insured deposits in all banks through a clear strategy that ensures the debt sustainability and does not excessively the Cypriot taxpayer,” Rice said.
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