The International Monetary Fund will contribute about 1 billion euros ($1.3 billion) as part of a rescue program for Cyprus that aims to stabilize the nation’s banks and reduce public spending, IMF Managing Director Christine Lagarde said.
The IMF today announced the staff-level agreement with Cyprus on the 10 billion-euro program, hashed out with euro-area authorities on March 25. The deal calls for Cyprus to restructure its two largest banks, reduce budget deficits and adjust its wage and pension systems.
“This is a challenging program that will require great efforts from the Cypriot population,” Lagarde said in a statement. “We believe that it provides a durable and fully financed solution to the underlying problems facing Cyprus and provides a sustainable path toward a recovery.”
Lagarde and European Union Economic and Monetary Affairs Commissioner Olli Rehn said they “stand by” Cyprus, according to a joint statement accompanying the IMF announcement. That statement said Cyprus has agreed to a “well-paced fiscal adjustment” that balances short-term and long-term needs.
The euro advanced against the U.S. dollar after the IMF’s announcement. The 17-nation currency traded at $1.2840 at 2:43 p.m. in Brussels, up 0.2 percent on the day, after being down as much as 0.2 percent earlier. The euro rose 0.3 percent against the yen before retreating to 119.91, up 0.1 percent on the day.
Cypriot President Nicos Anastasiades swore in a new finance minister today, the second of his six-week-old administration, after the government took more steps to ease banking restrictions in the island nation.
Haris Georgiades, 40, a graduate in economics from the University of Reading and a lawmaker with Anastasiades’s Disy party, was appointed the new finance chief at a ceremony in the capital of Nicosia, according to an e-mailed statement from the president’s office. He succeeds Michael Sarris, a former banker, who resigned yesterday to aid a probe into the collapse of the country’s two biggest lenders.
Cyprus is the fifth euro-zone country to receive international aid in Europe’s sovereign-debt crisis, which has entangled the finances of banks and nations in a mutually destructive spiral. The last 10 days of Cypriot rescue talks roiled markets as the country agreed to, then rejected, a plan to tax uninsured depositors before settling on the current deal.
The Cypriot rescue is a joint effort of the IMF, the European Commission and the European Central Bank, the so-called troika that has handled euro-area bailouts.
The three organizations agreed unanimously on how much the Washington-based IMF would contribute to the Cypriot program, commission spokesman Olivier Bailly told reporters in Brussels today. He said the Cyprus deal would be submitted to euro-area finance ministers for review next week.
The euro area has yet to agree on a memorandum of understanding for the bailout for Cyprus, though a draft is likely to emerge by April 9, German Finance Ministry spokesman Martin Kotthaus told reporters today in Berlin. Germany’s lower house of parliament may vote on the package after it next convenes on April 15, he said.
Lagarde said today that “importantly” the current deal means that insured depositors “have been fully protected,” representing 95 percent of account-holders. Uninsured depositors at Bank of Cyprus Plc and Cyprus Popular Bank Pcl, which is being wound down, will absorb losses and Cyprus has imposed temporary limits on capital transfers.
Cyprus eased capital controls on some transactions yesterday, the third tweak since a decree on the controls was issued by the Finance Ministry. Banks reopened on March 28 under tight restrictions, including a limit on daily withdrawals of 300 euros per person. The EU said today that it will continue to monitor the controls.
Lagarde said she would seek approval from the IMF’s executive board in May.