IMF to contribute 1 billion Euros to Cyprus bailout
People pass by a branch of the bank of Cyprus in central capital Nicosia, Cyprus, on Saturday. A deal with the IMF will bring 1 bilion euros in to help bail out the Cypriot banking system.
BRUSSELS — The International Monetary Fund said Wednesday it would contribute 1 billion euros, or about 10 percent of a bailout package, to Cyprus in exchange for widespread reforms of the Cypriot economy.
“This is a challenging program that will require great efforts from the Cypriot population,” Christine Lagarde, the managing director of the IMF, 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,” Lagarde said in a second statement issued jointly with Olli Rehn, the EU commissioner for economic and monetary affairs.
The statements follow agreement Tuesday between Cyprus and the so-called troika of international organizations — the European Central Bank, the European Commission and the IMF — that painstakingly negotiated the 10 billion euro ($13 billion) bailout and the terms of the deal.
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 the memorandum would not be made public while euro-area governments reviewed the document.
Christos Stylianides, a spokesman for the Cypriot government, 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.
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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 the Cypriot Parliament, where many lawmakers have criticized crisis measures that have already been taken, like capital controls.
In negotiations to reach a deal, the spotlight fell on whether the IMF was too forceful in pressing countries like Cyprus to limit debt and force losses on investors.
But Lagarde said the plan, which the IMF could agree to next month, sought fairness. 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.