Over the decades, Cyprus has repeatedly demonstrated that when it comes to risk management, the standards it applies are poor.
In the mid-90s, Cyprus decided to set up a stock exchange. It did so without taking into account any of the practices applied elsewhere to prevent market manipulation and insider trading. The outcome was inevitable, a bubble which caused serious losses to uninformed investors when it ultimately burst.
Defying the painful experience of the 1999-2000 stock exchange crash, Cyprus’ elite thought that it was still a good idea to transform the island into a financial services hub by developing mainly its banking sector. The outcome of that decision still hurts even today with those who lost their deposits or lost their jobs unable to repay their loans.
Another example of Cyprus’ failure to manage risks is the July 11, 2011 explosion of confiscated Iranian munitions which had been detained in Cyprus on route to Syria. They were stored in 98 containers, piled together in the open and exposed to the sun for three consecutive summers, until they exploded, killing 13, injuring 61 and knocking out half of the island’s power generation capacity.
The examples are numerous, and one could list many more.
What all the above examples have in common is one thing: that prior to taking the decision to go ahead, policymakers failed to either request advice about what to do and how to do it to maximise benefits and reduce risks. Or, where they did receive advice, they ignored it completely.
Apparently, Cyprus has been unable to learn any lessons from these experiences and continues to engage in high-risk, opportunistic activities which may lead to other disasters. One example is the sale of passports, dubbed the citizenship-by-investment scheme or ‘golden visas’. Before going ahead with this programme, the government did not seek advice from anyone else other than the actual stakeholders – i.e. the insolvent property developers, the banks, the corporate services providers – which it effectively bailed out this way.
On Monday, Transparency International said that offering high-net-worth customers these golden visas is a risky practice. The scheme is vulnerable to abuse, undermines the fight against corruption and enables money laundering through real estate. The European Commission, it said, it is due to publish a report this later this year.
Given that Cyprus has paid a heavy price for its opportunism in the past, it is high time to act proactively by thinking of ways of attracting investment and keeping risks manageable, unless it wants to discover the hard way, that such a scheme is not sustainable.