IMF, EU inspectors start quizzing Cyprus on bailout progress

Wed Jul 17, 2013 7:14am EDT
 
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By Michele Kambas

NICOSIA (Reuters) - Cyprus's international lenders began reviewing how the island is meeting the conditions of it 10 billion euro bailout on Wednesday, looking to see whether it should get the next tranche of aid.

The appraisal is the first since Cyprus secured a deal with the International Monetary Fund, the European Commission and the European Central Bank in March, pulling the cash-starved country away from the brink of financial meltdown.

It dealt a harsh blow to thousands who lost their savings in two major Cypriot banks, however.

Nicosia received a first tranche of aid in June worth 3 billion euros and euro zone finance ministers will decide on whether to issue the next tranche in mid-September, the size of which is yet to be determined.

Cypriot President Nicos Anastasiades said last month that some provisions of the bailout deal needed tweaking to address problems in the island's battered banking sector.

Cyprus had to wind down one lender, Laiki Bank, and use customer deposits exceeding 100,000 euros to prop up another, Bank of Cyprus, as part of the bailout agreement.

One area of focus for the so-called troika of lenders during the two-week review will be why the central bank has yet to finalize how much equity Bank of Cyprus shareholders will receive in exchange for giving up their deposits, a process known as a bail-in.

Finance Ministry officials are keen to see the resolution settled, worried that the uncertainty it is causing is preventing an easing of capital controls, introduced to prevent a cash flight after the bailout was agreed in March.   Continued...

 
Cyprus' Finance Minister Harris Georgiades waits for the start of a euro zone finance ministers meeting in Luxembourg June 20, 2013. REUTERS/Francois Lenoir