20 February 2014

Promising Cyprus economy results from Troika’s 3rd evaluation

On February 12th, 2014, Delia Velculescu, the International Monetary Fund official and head of Troika in Cyprus, spoke of tremendous positive macroeconomic performance in Cyprus, to the point that no new measures will need to be placed, at least for 2014. She also said that even though the Cypriot economy shrank noticeably in 2013, it shrank much less than initially anticipated, thanks to the resilient services, tourism sectors and stronger-than-expected consumer spending. She estimates that the economy will suffer even more (4.8%) in 2014 but it should start growing (1%) in the next year.

Ms. Velculescu also talked about Cyprus banks and the fact that they still face significant problems due to non-conforming loans which need to decrease in number. She suggested that plans for state-owned enterprise privatization must quickly proceed. She supports that privatization will bring about more competition and enhance efficiency and quality of service thus offering better prices and options for the consumer.  It will also help in attracting foreign investment, which will bring liquidity to the economy and enhance development.

Even though Cyprus, piling up years of mistakes, has built the “perfect storm”, she says that the IMF is determined to support the Cyprus government as well as banks, and help them regain the trust of the people and investors. She pointed out that banks that prove to be unable to support past mistakes will be considered non-viable and should be closed down. Stronger banks, which have been able to withstand the “storm”, will start to loosen the protective restrictions.  She hopes that soon enough, daily cash withdrawal limits of €300 ($410) and a ban on cashing checks will also be lifted. She considers lifting restrictions the key to jump-starting an injured economy. The Cypriot authorities have confirmed that most restrictions will likely be lifted early this year, and eventually with the re-stabilization of the economy the restrictions on money transfers abroad will be removed.

Ms. Velculescu also spoke of property confiscation and the fact that even though it is ultimately the bank’s decision, it should not be the intention to take any property by force. It’s an issue which should be dealt with by means of communication between the bank and the property owner. After all, confiscating properties and putting them on the market to be sold at a lower price, is not to the bank’s best interest.

Delia Velculescu finally commented that surviving the Cyprus crisis requires a lot of sacrifice from its people, but the promising results of the program since March have shown that Cyprus is on its path to restoring a fruitful economy. She notes that Cypriots have been great “students” thus far and in order to successfully complete the program and avoid any further austerity measures, the island should keep this positive momentum going.


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