Putin Warms to Cyprus Deal With Order to Renegotiate LoanScott Rose and Ilya Arkhipov
Russian President Vladimir Putin signaled acceptance of an accord reached by Cyprus on an international bailout, a week after berating an earlier rescue plan as “unfair, unprofessional and dangerous.”
Putin today ordered the government to start talks with Cypriot authorities on restructuring a 2.5 billion-euro ($3.2 billion) loan granted by Russia in December 2011, the president’s spokesman, Dmitry Peskov, said by phone. Terms sought by Cyprus would amount to a 10 percent writedown of the loan, Finance Minister Anton Siluanov said today.
“Considering the decisions taken by the Eurogroup, President Vladimir Putin deems it possible to back efforts by the Cypriot president, as well as the European Commission, aimed at overcoming the crisis in the island nation’s economy and system of finance and banking,” Peskov said.
The ruble reversed gains against the dollar, falling 0.2 percent to 30.8910 as of 7:04 p.m. in Moscow. The euro weakened 0.8 percent to $1.2890.
In acquiescing to the terms of a rescue package brokered in late-night negotiations, Putin is tempering his indignation over a proposed penalty on Cypriot bank deposits as a result of a financial-industry overhaul.
Cyprus agreed to the outlines of an aid package, paving the way for 10 billion euros of emergency loans to stave off the threat of default. Russian companies and individuals have an estimated $31 billion in Cyprus, according to Moody’s Investors Service.
As part of the deal, the country’s second-largest bank will be shuttered under pressure from a German-led bloc. The accord imposes losses that two European Union officials said would be no more than 40 percent on uninsured depositors at Bank of Cyprus Plc, the largest bank, which will take over the viable assets of Cyprus Popular Bank Pcl, the second biggest.
“Russia is ready to restructure the loan as soon as the situation becomes more clear,” Oleg Vyugin, chairman of MDM Bank in Moscow and a former head of Russia’s financial markets watchdog, said by phone. “That seems to have happened.”
The east Mediterranean nation has officially asked Russia to extend its 2.5 billion-euro loan by five years to 2021, the Nicosia-based Finance Ministry said Jan. 10. The euro area’s third-smallest economy borrowed the funds in December 2011 and has also sought an additional 5 billion euros from Russia.
Agreeing to a five-year extension and a cut in the interest rate from 4.5 percent to 2.5 percent would amount to “decent support” for Cyprus, Siluanov told reporters in Durban, South Africa. He called on the country to resume banking operations as quickly as possible and avoid imposing capital controls on “well-functioning banks.”
Russia turned away Cypriot Finance Minister Michael Sarris last week after failing to agree on concessions to ease terms of the loan or provide new assistance. Sarris told reporters in Brussels that Cyprus’s relationship with Russia “is not over,” even as it has been “disappointed” by a financial-industry overhaul that will lead to losses for Russian investors. Russian Prime Minister Dmitry Medvedev said March 22 that his country hadn’t “shut the door” on further aid to Cyprus.
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.
“We are carefully monitoring the developing situation in Cyprus,” Russian First Deputy Premier Igor Shuvalov told reporters today. “We decided to wait for final decision to be taken by the EU and Cyprus, and then we’ll consider if there’s a possibility or necessity for extending Russian assistance.”
Cyprus’s plans to tax uninsured deposits amounts to theft, Medvedev said, 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 today at a meeting outside Moscow. Russia is assessing the implications of the latest deal, he said.