Cypriot Lawmakers Approve Loan Agreement With Slim MajorityPaul Tugwell and Georgios Georgiou
Cyprus’s international rescue loan deal was approved by a slim majority in the nation’s parliament today, with 29 lawmakers voting in favor and 27 against.
Cypriot President Nicos Anastasiades agreed on March 25 to a 10 billion-euro ($13.2 billion) loan from the euro area and the International Monetary Fund in return for measures including a tax on bank deposits of more than 100,000 euros at the country’s two biggest banks, wage and pension cuts and the sale of assets and gold. Those concessions were demanded by creditors in a bid to shrink what European and IMF officials called an oversized and unsustainable banking sector.
“Cyprus is going through difficult times,” Anastasiades said before the vote as he urged lawmakers to approve the deal. “What we’re called upon to do today is to adopt a loan agreement that will allow our country to breathe and that will give us the opportunity to overcome whatever problems we’re facing in this crisis.”
Parliament Speaker Yiannakis Omirou announced the vote result in comments televised live on state-run RIK TV.
Lawmakers in Germany, the Netherlands, Austria and Finland have already agreed to the Cypriot bailout. Cyprus will receive its first loan installment in May, the European Stability Mechanism, the euro-area’s bailout fund, said April 24. The rescue funds will be used to cover fiscal needs, redeem long-term debt and recapitalize financial institutions, it said.
Lawmakers earlier today approved a property tax increase and further public-sector pay cuts as required by the troika of the IMF, European Central Bank and European Commission. They had already agreed on April 18 to other creditor demands including raising the corporate tax rate to 12.5 percent and increasing the tax on deposit interest to 30 percent from 15 percent.
Cyprus’s economy is expected to contract 10.9 percent in 2013 and by 4.8 percent in 2014 under a main scenario that only takes into account economic measures that have been announced so far, economists at Athens-based Eurobank Ergasias SA said in a April 24 report. In an adverse scenario with the additional impact of the credit crunch, corporate defaults and capital controls, the economic contraction may reach 12.9 percent, according to the report.
Capital controls, including restrictions on cash withdrawals and transfers abroad, have been in place since banks reopened on March 28 after a closure of almost two weeks. Government decrees since then have eased the controls, without lifting them, with the 10th decree on April 25 relaxing restrictions on foreign clients of Cypriot units of overseas banks.
For Cyprus to succeed in kick-starting its economy and to emerge from its crisis as soon as possible, the country must strictly adhere to all the commitments it has undertaken in the loan accord, Anastasiades said April 19.