By George Psyllides
THE European Bank for Reconstruction and Development (EBRD) has agreed to finance Cyprus for a limited period to help the island overcome the problems caused by the deep economic crisis, it was announced yesterday.
The agreement, which will see Cyprus becoming a recipient country until 2020, was announced by Finance Minister Harris Georgiades through his Twitter account.
“EBRD decides to commence operations in Cyprus.”
EBRD shareholders earlier voted to provide up to €700 million of financing to Cyprus over the next six years to help it weather the eurozone debt crisis.
In a statement submitted to the EBRD’s annual meeting on Wednesday, the minister said the bank’s operations in Cyprus would significantly contribute in addressing the short and medium-term financial, fiscal and structural challenges the country faces
EBRD will support Cyprus’ privatisation programme and assist with corporate restructuring.
“The bank will also work to strengthen the financial sector to make it much more robust, much more resilient,” EBRD President Sir Suma Chakrabarti said, adding that there was a major need to restructure and rebalance the Cyprus economy.
The EBRD president stressed that “with the full support of the parties involved” the bank would be providing financing across the whole of Cyprus, for the benefit of all the people who live on the island.
The finance ministry said it was an especially important decision that created prospects for private sector financing programmes but also investment in vital sectors of the economy and the banking sector.
There has been talk of transferring an 18 per cent stake held by the now defunct Laiki Bank in Bank of Cyprus (BoC) to the EBRD.
Under the terms of its €10 billion bailout, Cyprus had to close down Laiki and seize uninsured deposits in BoC to recapitalise the lender.
Laiki went into liquidation, while deposits below €100,000 as well as its assets were absorbed by BoC.
It has been reported this week that the Resolution Authority (Central Bank, Finance Ministry, Securities and Exchange Commission), which administers the share, could transfer its voting rights to EBRD.
BoC CEO John Hourican said such a development would be good for Cyprus and his lender.
“It brings a very reputable institution on to the island, and putting their wisdom and benefit to our use is a good thing for the bank and a good thing for Cyprus,” Hourican told reporters on the sidelines of an economic conference in Nicosia.
The bank’s operations will complement those of other international organisations and international financial institutions active on the island.
The EBRD intends to establish a local office in Cyprus with resident staff.
The EBRD provides project financing for banks, industries and businesses, both new ventures and investments in existing companies.
Direct investment generally ranges between €5 million and €230 million. The bank typically funds up to 35 per cent of the project cost.
The Bank invests only in projects that could not otherwise attract financing on similar terms.
The EBRD was created in 1991 to invest in the former Soviet bloc countries of eastern Europe. In recent years, its membership has expanded to include Mongolia, Turkey and economies affected directly or indirectly by the Arab Spring such as Morocco, Egypt, Tunisia and Jordan.