By Angelos Anastasiou
THE UPDATED Memorandum of Understanding (MoU), a quarterly-updated list of reforms the Cyprus government needs to undertake periodically in order to receive each tranche of a €10 billion rescue loan from the troika of international creditors (European Commission, European Central Bank and the International Monetary Fund), was received by the government and EU-member states on Monday, according to Finance Minister Harris Georgiades.
The updated draft of the MoU was the result of the fourth review by the troika’s Cyprus delegation of the island’s adjustment programme, agreed to between its government and international lenders in March 2013.
Consolidating the Internal Revenue and Value-Added Tax departments into a single body, finalising foreclosure legislation on mortgaged properties – but not primary residences – and introducing a Fiscal Council, tasked with monitoring and publicly commenting on the government’s budgetary strategy, were the main prerequisites for the release of the next tranche of aid, totalling approximately €600 million.
“The decision on the release of the next tranche will be made by June 19,” Georgiades said, meaning that the prerequisites must have been completed by that date.
But the government-sponsored bill regarding the unification of the two revenue services into a single Taxation Department under a taxation commissioner with a five-year mandate has stirred up some controversy, as civil servants’ union PASYDY objects to the commissioner’s appointment by the government. The union argued that the consolidation of the two departments into a single body is unconstitutional, and that the position of taxation commissioner should be treated like any other hiring to the civil service – following a screening process by the civil service committee.
Georgiades defended the troika demand for the departments’ consolidation, citing “international experience” of the inefficiencies two separate departments suffer, as well as the duplication of posts that can be averted by a single department.
The Taxation Department bill, Georgiades told lawmakers on Monday, needs to be voted by June 5, whereas the Fiscal Council bill must be voted by June 10.
Additionally, the updated MoU calls for the government to “implement a general valuation (GV) for all immovable properties,” as well as put together a communication plan to inform the public of the goals of property tax reform, along with a comprehensive “objections’ management strategy” to deal with valuation complaints by the end of June 2014.
But while no provision has been added or removed to the MoU with regard to the proposed “insolvency framework” – legislation to make current law more lender-friendly while protecting solvent but illiquid borrowers – foreclosures for mortgaged properties except primary residences must be enabled by end-June.
“The legal framework in relation to foreclosures and the forced sales of mortgaged property will be amended […] and adopted by end-June, with immediate effect for all mortgaged properties except primary residences (for which provisions will enter into effect by end-December, in line with the adoption of insolvency legislation), to allow for private auctions to be conducted by mortgage creditors, without interference from government agencies,” the updated MoU read.
“In the context of the amendment, the focus will be on big borrowers who are uncooperative, and will include protection clauses for cooperative borrowers,” Georgiades said.
He explained that current rules allow borrowers to delay repayment with no consequence, whereas the proposed legislation will give lenders the chance to put some pressure on defaulting borrowers who refuse to engage with their bank.
“The framework will also help address public opinion sentiment that banks aren’t doing something about those who owe them the most,” Georgiades argued.