The International Monetary Fund defended the agreement reached this week to bail out Cyprus, saying it had the support of all parties involved and will help the country develop a healthier economy over the long term.
“The adjustment that the plan will entail as the financial sector downsizes and the economy adjusts accordingly will be a difficult process for the Cypriot people over some period of time -- we are mindful of that,” Gerry Rice, the IMF’s director of external affairs, told reporters today in Washington. “But it will ultimately result in an economic model that is more sustainable and growth promoting.”
IMF staff are in Cyprus trying to complete technical details on a financial assistance package, work that Rice said is expected to conclude in early April. He said a final decision on the IMF’s contribution to the program isn’t expected before the end of April.
“It’s important for us to step back and remember the exceptional situation that Cyprus was facing with an oversized banking sector, two major banks deeply insolvent and high and rising public debt,” Rice said. “Cyprus was already facing a crisis situation.”
Cyprus’s banks opened for the first time in almost two weeks, with new rules curbing access to cash preventing an initial panic to withdraw deposits. President Nicos Anastasiades thanked Cypriots for maintaining calm as banks opened, with many savers heeding the government’s call for citizens not to rush to banks or seeking to avoid potential chaos.
Lenders on the Mediterranean island had been closed since March 16, when the European Union presented a proposal to force losses on all depositors in exchange for a 10 billion-euro bailout. That plan touched off protests and political upheaval, and was rejected by the country’s parliament. A subsequent agreement reached March 25 shut Cyprus Popular Bank Pcl, the second-largest lender, and imposed larger losses on uninsured depositors.
“The agreement reached in Brussels I think deals with these challenges up front and focuses on dealing with the two problem banks, and fully protecting insured deposits in all banks through a clear strategy that ensures the debt sustainability and does not excessively the Cypriot taxpayer,” Rice said.
Asked whether the rescue for Cyprus could be a model for other countries facing a financial crisis, Rice said, “the case of Cyprus was very complex and unique in nature and it would be difficult to extend the case to Europe or the rest of the world.”
Rice said the issue showed the need for Europe to move toward a unified banking system.
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