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Cyprus

More than two years before recovery: IMF chief

International Monetary Fund (IMF) Managing Director Christine Lagarde said yesterday Cyprus will probably need more than two years to get back on its feet after the near-destruction of its banking sector during the island’s messy bailout.
Speaking at the Washington D.C.-based Brookings Instiution, Lagarde said she hoped Cyprus can get back to a “normal business model” but it will probably take more than a couple of years.
Lagarde had been asked to give her view on what is going to drive the island’s economy after its financial system was mostly decimated during a messy €10 billion bailout agreed with its EU partners and the IMF.
“I would certainly hope that the country can get back to a normal business model that will be beneficial for the Cyprus population. But it will take a couple of years, probably more,” Lagarde said.
The agreement saw the closure of the island’s second-biggest bank, Laiki, and a raid on uninsured deposits – over €100,000 – in the Bank of Cyprus that will be used for its recapitalisation.
In the run up to the agreement, some EU partners charged that Cyprus’ oversized financial sector was being used to launder dirty money.
“I would hope that a lot of the service industry that is in Cyprus that is not related to fuzzy financial activity will survive and will thrive,” the IMF chief said.
Following the decisions, authorities imposed capital controls to prevent a bank run, although they have also served to stifle economic activity further.
The finance ministry has said that it expected the economy to contract by more than 8.7 per cent this year and a further 3.9 per cent in 2014 before Cyprus saw any signs of growth in 2015.
The jobless rate is expected to reach 15.5 per cent — compared with 11.8 per cent last year – and continue its climb to 16.9 per cent in 2014.

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