articles | 12 July 2013

Altered loan deal with Russia almost ready

Cyprus and Russia have reached a preliminary agreement on the restructuring of the €2.5 billion lent to the previous government in 2011, said Russian Ambassador to Nicosia Vyacheslav Shumskiy yesterday.

In an interview with Sigma television published online yesterday, the Russian diplomat said the deal was almost ready to be signed and denied reports that Russia had failed to lend a helping hand after Cyprus suffered a late night session of the Eurogroup last March. Shumskiy argued that the then finance minister Michalis Sarris who was sent to Moscow simply went unprepared, leaving Russia little choice in the matter. Russia said from the start that it would help and offered to cooperate and coordinate with the EU on Cyprus. But that didn’t happen “because the decisions taken by the EU were taken overnight without informing us, warning us or consulting us on the measures they decided to take. This was very unfortunate.”

Shumskiy confirmed reports that President Nicos Anastasiades had tried unsuccessfully to contact his Russian counterpart Vladimir Putin on the eve of the March 15 Eurogroup decision for a ‘bail-in’ of Cyprus’ two biggest banks. The Russian ambassador said Putin was in a meeting at the time with the Armenian President and then had to jump on a flight to St Petersburg for a meeting with the President of Belarus. “The timing was not the best” for phone call, he added. Asked about the sense in Cyprus that Russia shied away from lending a helping hand after March 15, the ambassador said this view was not correct. “If you remember, during his visit to Moscow, the then finance minister Michalis Sarris went with there with high expectations. I can talk openly now and say that the proposals he took with him to Moscow were not well thought out. “They were not properly prepared and structured for serious discussion and consultation, something which required time to happen. Therefore, we could not consider a proposal that was not properly prepared.” From that perspective, the finance minister’s visit was evidently not successful, he added.

Fears had surfaced after the troika’s decision on a Cyprus bail-in that Russia would be more reluctant to restructure the €2.5 billion loan that matures in 2016, with speculation that any restructuring would be tied to concessions elsewhere, including possible interests in the construction of a liquefaction plant for natural gas, or even a military base on the island. In the run-up to the Eurogroup decisions in March, statements and reports, particularly from German lawmakers and media had painted a picture of Cyprus being a den of vice and money laundering for Russian oligarchs, an image which the troika-imposed Moneyval and Deloitte audits failed to verify to a great extent. Once the decision was final, Russian businesses lost almost all deposits in Laiki Bank while a final figure on the haircut on Bank of Cyprus deposits has yet to be conclusively determined. However, Shumisky yesterday said he was “happy” to reveal that Cyprus and Russia “are in the final stage of restructuring the loan given to Cyprus in 2011”. “There is a preliminary agreement, which has been confirmed by both sides for a restructuring of the loan and reduction of the interest rate. Now, we are looking for a date to sign the agreement and put it into implementation,” he said.

Instead of paying a lump sum at the end of 2016, repayment will start in 2021 while the interest rate will be reduced from 4.5 per cent to 2.5 per cent. “This means Cyprus will save €200 million,” he said. Shumskiy noted that it was obvious two, three years ago that structural changes were needed in Cyprus, to adapt to changes in the global economy. “You cannot always live with a golden spoon in your hand. You must develop in parallel with the course of the general trend of the global economy and, unfortunately, that did not happen in Cyprus’ case.”

The Russian diplomat argued that Russian businesses would stick with Cyprus because if the right measures are taken, Cyprus can get out of the mess in a reasonable time. Also, it would cost them too much to relocate. Many Russian businesses have chosen to stay but “they will be watching the situation closely and the sooner we return to normal levels, the better, and I’m speaking about the financial sector, and specifically, the restructuring of the Bank of Cyprus”.

He noted that Russian businesses have no choiceother than to trust Cypriot banks again as “all their money is invested in the Bank of Cyprus, they have been offered shares”. He added: “I believe you are condemned, it is your destiny, to save the bank. It is the largest Cypriot bank, it is a national treasure, and everyone is obliged to support it, save it and help it to grow.” Shumskiy called for capital controls to be lifted as soon as possible, “otherwise the situation will be very, very difficult”.

Regarding Russia’s use of Limassol port by Russian warships, he said the matter had been misinterpreted by some media. “In reality, it’s about facilitating the authorisation procedure to approach the port. That is all. And that is something which Cyprus does with other countries.” He denied that Russia had requested permission to use the Andreas Papandreou air base in Paphos, adding however: “We are discussing, in the event that we seek permission to land Russian aircraft at the base, to be facilitated.” He categorically denied reports that Russia was seekinga military foothold in Cyprus: “No, it would be foolish to be looking for a base (in Cyprus).”

Source: Cyprus Mail

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