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IMF to Contribute 1B Euros to Cyprus Bailout

April 3, 2013
IMF to Contribute 1B Euros to Cyprus Bailout

Brussels/Nicosia (dpa) - The International Monetary Fund said Wednesday it would contribute about 1 billion euros ($1.34 billion) to the bailout for Cyprus.

The decision came a day after Cyprus' international lenders - the European Commission, European Central Bank and IMF - agreed to the terms of a 10-billion-euro ($12.8 billion) bailout for the Mediterranean country.

IMF chief Christine Lagarde said the executive board would likely be asked to approve the deal in May.

"The Cypriot authorities have put forward an ambitious, multi-year reform programme to address the economic challenges they face," she said.

In Nicosia, Harris Georgiadis, 40, from the ruling Democratic Rally party was sworn in as the new finance minister - the second of the six-week old administration.

"I have a great responsibility and I will do the best for the country," Georgiades said after the ceremony.

He succeeds Michaelis Sarris, who resigned Tuesday to facilitate the work of a judicial investigation into the financial crisis. Some reports linked his decision to his previous tenure as chairman of the troubled Laiki Bank.

Cyprus expects to receive its first bailout tranche in May, and will carry an interest rate of 2.5 per cent and a 10-year grace period.

The government has agreed to austerity measures, including raising the corporate tax rate from 10 to 12.5 per cent, firing 4,500 civil servants by 2018 and imposing a temporary insurance fee of 1.5 per cent on monthly salaries in return for healthcare.

The deal foresees Cyprus running a primary deficit until 2016 and a primary surplus of 4 per cent of gross domestic product from 2017.

The IMF said the reforms were aimed at stabilizing the financial system, achieving fiscal sustainability, and economic recovery to preserve the welfare of the population.

"This is a challenging programme that will require great efforts from the Cypriot population. We believe that it provides a durable and fully financed solution to the underlying problems facing Cyprus and provides a sustainable path toward a recovery," Lagarde said.

Lagarde and EU Economy Commissioner Olli Rehn noted that "significant challenges lie ahead for Cyprus".

In reaction to the austerity measures, Cyprus' bank workers called a two-hour work stoppage for Thursday, saying pension schemes at the island's two largest banks were not protected and suffered huge losses under the bailout deal.

Unions said the pension funds of workers in both Laiki and the Bank of Cyprus were at risk, as were the pension funds of other institutions deposited in those banks.

Under the bailout, Nicosia was forced to split Laiki bank into a "good" and "bad" bank and impose losses of up to 60 per cent on uninsured depositors at the Bank of Cyprus.

On Tuesday, the government partially eased currency controls put in place to avoid a run on deposits. Georgiades said restrictions would be lifted gradually.

The Finance Ministry said a limit on transactions that do not require Central Bank approval will be raised to 25,000 euros from 5,000 euros.

Other restrictions introduced last week as banks opened for the first time after an almost two-week closure will remain in place. Those include a 300-euro per day cash withdrawal limit and a 1,000-euro limit on cash for travelers.

Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH

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