“This is a challenging program that will require great efforts from the Cypriot population,” Christine Lagarde, the managing director of the I.M.F., said in a statement.
The goal was to “stand by Cyprus and the Cypriot people in helping to restore financial stability, fiscal sustainability and growth to the country and its people,” Ms. Lagarde said in a second statement she issued jointly with Olli Rehn, the European Union commissioner for economic and monetary affairs.
The statements follow agreement on Tuesday between Cyprus and the so-called troika of international organizations — the European Central Bank, the European Commission and the I.M.F. — that painstakingly negotiated the €10 billion, or $13 billion, bailout and the terms of the deal.
“This is an important development which brings a long period of uncertainty to an end,” Christos Stylianides, a spokesman for the Cypriot government, said Tuesday in a statement made available on Wednesday.
“Undoubtedly, the completion of the agreement with troika should have taken place a lot sooner, under more favorable political and financial circumstances,” said Mr. Stylianides, who was apparently referring to infighting in Cyprus about responsibility for the financial debacle.
The memorandum of understanding between Cyprus and the troika outlines budget cuts, privatizations and other conditions Cyprus must meet to receive its allotments of bailout money. A parliamentary vote in Cyprus is needed to approve the deal, while Germany and Finland are also expected to seek the approval of their Parliaments.
Olivier Bailly, a spokesman for the European Commission, said Wednesday that the memorandum would not be made public while euro-area governments reviewed the document. But Cypriot authorities on Tuesday described elements of the agreement that they regarded as favorable.
Mr. Stylianides, the Cypriot spokesman, said the deal safeguarded important parts of the economy by keeping deposits of natural gas in offshore waters under Cypriot jurisdiction, and by winning two more years until 2018 to hit deficit targets and carry out privatizations.
Mr. Stylianides also said the government saved the jobs of contract teachers and of 500 civil servants, and had overcome demands by the troika to tax dividends.
Even so, the memorandum could be hotly contested in by the Cypriot Parliament, where many lawmakers have criticized crisis measures that already have been taken, like capital controls, which threaten to make a bleak economic outlook even worse.
In a move partly aimed at easing those tensions and smoothing parliamentary approval of the memorandum in Cyprus, the government in Nicosia on Tuesday appointed a new finance minister, Harris Georgiades, to replace Michalis Sarris, who resigned. Mr. Sarris has been blamed at home and abroad for his handling of the crisis. Mr. Georgiades was the deputy finance minister.
Over the course of the negotiations to reach a deal for Cyprus, the spotlight fell on whether the I.M.F. was too forceful in pressing countries like Cyprus to limit debt and force losses on investors. The approach of the I.M.F. strained relations with the European Commission, which had harbored concerns about the potentially confidence-sapping effects of such aggressive measures on other economies within the euro area.
The I.M.F. proportion of the package Cyprus is smaller than in some previous arrangements for countries like Greece, but that was not a sign of a change in the I.M.F.’s policy in the euro area, said Mr. Bailly, the commission spokesman. The sums given by the I.M.F. depend on “specific situation” in each country, he said, adding that the €1 billion, three-year loan for Cyprus “was unanimously agreed in the troika.”
Ms. Lagarde said substantial spending cuts would be needed “to put debt on a firmly downward path” including in areas like social welfare programs.
But she said the plan, which the I.M.F. could agree to early next month, sought fairness.
“The fiscal and financial policies of the program seek to distribute the burden of the adjustment fairly among the various segments of the population and to protect the most vulnerable groups,” she said.
More than 95 percent of account holders at Laiki Bank, which will be closed under the plan, and at the Bank of Cyprus, which is being restructured, were fully protected, she said. Bank of Cyprus and Laiki Bank are the two biggest banks in the island nation.
Key fiscal measures included raising the country’s corporate income tax rate to 12.5 percent from 10 percent, she said.
Article source: http://www.nytimes.com/2013/04/04/business/global/imf-to-contribute-1-billion-euros-to-cyprus-bailout.html?partner=rss&emc=rss
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