Russia Readying Help for Companies With Funds Ensnared in Cyprus
Russia is among the biggest losers of the crisis in Cyprus and may use its development bank to aid companies with funds trapped behind capital controls in place on the cash-strapped island, the head of the state lender said.
“We are prepared to consider proposals and ideas, if any, that may be forthcoming from our finance ministry or other state institutions,” Vladimir Dmitriev, chairman of Vnesheconombank, known as VEB, said in an interview yesterday in Durban, South Africa. “One can assume a mechanism of temporary help for Russian business will be created.”
Russian lenders and companies, which had about $31 billion in Cypriot banks by the end of 2012, are bearing the brunt of losses inflicted on foreign investors by the country’s 10 billion-euro ($13 billion) bailout. The Russian government has been notified of corporate funds frozen in Cyprus after being accumulated there for deals, First Deputy Prime Minister Igor Shuvalov said in a radio interview yesterday.
Restrictions on money transfers probably won’t be loosened for weeks as the Mediterranean island digests the impact of the European decision to close the second-largest Cypriot bank and impose losses on uninsured depositors, according to Finance Minister Michael Sarris.
Cyprus may announce what types of controls it plans to implement today, before its banks are scheduled to reopen tomorrow. The country’s leaders are seeking to prevent the flight of money from the island’s lenders, which have been closed for almost two weeks. Countries from Argentina to Iceland have used similar measures in the past to defend against devaluation.
“I don’t fully understand which concrete measures will be implemented,” Dmitriev said. “But it’s becoming clear the interests of Russian business -- both companies and banks --will be hit by measures being adopted under pressure from the European Union.”
Russia last week turned Sarris away after failing to agree on easing the terms of its 2011 loan or provide a new one. President Vladimir Putin ordered the government on March 25 to start talks with Cypriot authorities on restructuring a 2.5 billion-euro loan granted by Russia. Terms sought by Cyprus would amount to a 10 percent writedown of the loan, according to Finance Minister Anton Siluanov.
Prime Minister Dmitry Medvedev has threatened renouncing a double-taxation treaty with Cyprus and reconsidering the level of euros held in Russia’s $520 billion foreign-currency and gold reserves. European governments including Germany have insisted that Russia bear some of the cost of rescuing Cyprus, arguing that Russian businesses were using the island to launder money.
VEB, whose supervisory council is chaired by Medvedev, postponed a Swiss franc-denominated Eurobond placement because of the developments in Cyprus, Dmitriev said.
Cyprus’s plans to tax uninsured deposits amounts to theft, Medvedev said March 25, in a reprisal of a comment attributed to Vladimir Lenin, who used it to refer to Bolshevik expropriation of property belonging to the wealthy.
“They’re continuing, I think, to plunder the loot,” Medvedev said.