CONTROLS on the movement of capital that have been in place for the last two years will be lifted on Monday. This was positive development for the economy, which was why President Anastasiades called a news conference yesterday to announce the news. It was proof that the economy was recovering and the banking sector had been stabilised, no longer in need of protective capital controls.
In theory, Cyprus’ financial sector has returned to normalcy, although there is still the thorny issue of the non-performing loans which remains in limbo because of the refusal of the political parties to lift the suspension of the foreclosures law. However, with the insolvency bills set to be approved after Easter, the foreclosures law should be in force before the end of this month. Once this happens and the banks start turning the screws on individuals and businesses with NPLs, the economy could take another blow, but this is unavoidable.
The president did not say much about this at yesterday’s news conference which focused on boosting public confidence by highlighting all the measures the government would be taking to stimulate economic activity and bring unemployment under control. The country needed a lift after what it had gone through in the last couple of years, but it is questionable whether Anastasiades would have achieved this yesterday without the announcement of state spending on development projects and training schemes for the unemployed.
To be fair, there is not that much more the government could do because the state can never be the driver of growth. It could stimulate demand with development spending, to an extent, but without the business sector making a significant contribution – and this is looking far from likely at present – the recovery we all want will not arrive. Cyprus may soon be able to return to the markets and have no need for the financial support of the Troika, as the president said yesterday, but the private sector, including the banks, would need significantly longer than the public sector to return to health.
However, this should take away nothing from the government’s successful management of the worst economic crisis ever suffered by the country. Total collapse was averted and banking sector was stabilised which is why the capital controls could finally be lifted. The economy is moving the right direction even though there is still some way to go before there is real growth and we could speak of recovery.