| NICOSIA, July 17
NICOSIA, July 17 Cyprus's international lenders
began reviewing how the island is meeting the conditions of it
10 billion euro bailout on Wednesday, looking to see whether it
should get the next tranche of aid.
The appraisal is the first since Cyprus secured a deal with
the International Monetary Fund, the European Commission and the
European Central Bank in March, pulling the cash-starved country
away from the brink of financial meltdown.
It dealt a harsh blow to thousands who lost their savings in
two major Cypriot banks, however.
Nicosia received a first tranche of aid in June worth 3
billion euros and euro zone finance ministers will decide on
whether to issue the next tranche in mid-September, the size of
which is yet to be determined.
Cypriot President Nicos Anastasiades said last month that
some provisions of the bailout deal needed tweaking to address
problems in the island's battered banking sector.
Cyprus had to wind down one lender, Laiki Bank, and use
customer deposits exceeding 100,000 euros to prop up another,
Bank of Cyprus, as part of the bailout agreement.
One area of focus for the so-called troika of lenders during
the two-week review will be why the central bank has yet to
finalise how much equity Bank of Cyprus shareholders will
receive in exchange for giving up their deposits, a process
known as a bail-in.
Finance Ministry officials are keen to see the resolution
settled, worried that the uncertainty it is causing is
preventing an easing of capital controls, introduced to prevent
a cash flight after the bailout was agreed in March.
"Swiftly exiting the resolution status would allow us to
take new steps to further ease, and ultimately eliminate capital
controls," Finance Minister Harris Georgiades said on Tuesday.
An independent audit of Bank of Cyprus assets is under way,
which would define precisely how much of depositors' cash would
The island has promised its lenders that it would consider
the option of selling some of its gold reserves to help pay down
its debt but Georgiades said on Tuesday that that was only one
option under consideration.
Under the bailout, Cyprus has agreed to cut its budget
deficit to 2.4 percent of GDP in 2016, from an estimated 5.9
percent this year.
Although foreign banks on the island were exempt from most
restrictions imposed under the bailout, customers at banks in
Cyprus are limited to withdrawals of up to 300 euros a day,
cheques cannot be cashed and bank transfers are vetted.
Those restrictions are adding to an acute credit crunch
caused by financial institutions which are jittery about their
balance sheets in a rapidly deteriorating economy and have put
the brakes on lending, economists say.
"Banks aren't lending," said economist Yiannis Tirkides, who
did not wish to disclose the name of his company. "A lot has to
do with expectations, and that contributes to the uncertainty,"