By Angelos Anastasiou
AMIDST fears that a renewed suspension of the foreclosures law by parliament could pose risks similar to those currently faced by Greece, Finance minister Harris Georgiades on Friday stressed the need for Cyprus’ economic adjustment programme to return on track.
The programme agreed with the troika of international lenders was derailed last month when parliament voted to suspend implementation of tougher foreclosure legislation until March 2, to coincide with the voting of the insolvency framework – a set of laws governing bankruptcy and borrower protection.
The International Monetary Fund said the implementation of a modern legislative framework on foreclosures and insolvencies remain “key programme commitments” for Cyprus.
“These steps aim at reducing the high level of non-performing loans, which is essential to restoring growth and job creation in Cyprus,” the IMF said in a statement.
“Given the further suspension of the effective application of the foreclosure framework, reaching staff-level agreement on the review was not possible during this visit,” the IMF said. “The teams look forward to a timely completion of the review as soon as the conditions are in place for a positive conclusion”.
According to troika planning, the new foreclosure law that greatly simplifies and expedites foreclosure procedure, should have been implemented on January 1, 2015, but the government’s failure to take the insolvency framework to a House vote by then – the fifth and final law comprising the framework currently in the final stages of preparation – has been cited by parliamentary parties as reason to suspend foreclosures.
In turn, the suspension caused the troika to freeze Cyprus’ programme until such time as the foreclosure law is enforced.
Against this backdrop, the troika Cyprus mission chiefs have been on the island this week for an informal progress review.
Among the issues discussed was a sticking point in the final insolvency framework bill – the treatment of guarantors in case of a borrower’s default, or a court-ordered restructuring of a loan.
Political parties involved in the preparation of the bill have been arguing that guarantors should not be stuck with the unpaid debt of a defaulting borrower, especially since the borrower will be relieved of any obligation following a three-year probation period after being declared bankrupt.
But the Troika has insisted that relief for guarantors could not come at the expense of the lender, and thus banks should be entitled to go after guarantors for any outstanding amounts in excess of the value of any collateral, if the borrower defaults or obtains a court order for the mandatory restructuring of the loan.
With no conciliatory proposal in sight, the stalemate threatens a further extension of the programme freeze, as neither side appears willing to move back on its arguments.
And although the government is not facing imminent liquidity issues, as long as no progress is made on the insolvency framework, the likelihood of it running out of money increases with time.
In response to the troika’s proposals, political parties issued statements rejecting its arguments.
But in a statement of its own marking the end of the unofficial progress review, the European Commission on Friday noted that the implementation of a modern legislative framework on foreclosures and insolvencies remain “key programme commitments” for Cyprus.
“These steps aim at reducing the high level of non-performing loans, which is essential to restoring growth and job creation in Cyprus,” the statement said.
Speaking to reporters on Friday afternoon after the troika delegates departed, Finance minister Georgiades said that the only way to survival for any nation is either through access to international markets – which Cyprus has lost since 2011 – or to a bailout programme.
He added that the unofficial review confirmed that the Cyprus economy is on a path to correction.
“Implementation of the programme does not lead our economy to a recessionary spiral, but in the opposite direction,” he noted. “Our economy is turning around – though we may not yet consider the challenges tackled.”
He also addressed the upcoming ‘quantitative easing’ programme announced by the European Central Bank, which he described as an “opportunity”, although Cyprus will only become eligible to enter it after a positive programme review.
“There are opportunities we need to pursue,” he said – a nod to the urgent need for the reform programme to return on track. “And there are potential risks we need to protect ourselves from.”