* Putin orders govt to renegotiate Cypriot bailout loan
* FinMin links easier terms to banking cleanup
* No free pass from Kremlin for offshore structures
By Douglas Busvine and Darya Korsunskaya
MOSCOW, March 25 Russia signalled on Monday it
would backstop the European Union's bailout of Cyprus despite
anger that the weekend rescue deal would impose heavy losses on
uninsured depositors, many of them Russian.
President Vladimir Putin ordered his government to negotiate
the restructuring of a bailout loan it granted to Cyprus in 2011
- having rejected Nicosia's request for easier terms in crisis
talks last week.
Putin "considers it possible to support efforts ... aimed at
overcoming the crisis in the economy and banking system of this
island state," his spokesman Dmitry Peskov said.
Russia has repeatedly expressed its dismay at Europe's
handling of the debt crisis in Cyprus, while until now rebuffing
the entreaties of President Nicos Anastasiades to offer
significant financial support of its own.
But, following the agreement of a 10 billion euro ($13
billion) European bailout deal over the weekend, Moscow's
position has softened over extending and easing the terms of its
existing 2.5 billion euro loan to Cyprus.
Cyprus is seeking a five-year extension, a 10 percent
writedown and a cut in the interest rate to 2.5 percent from 4.5
percent. This will only be possible if its banking system is
stabilised, said Russian Finance Minister Anton Siluanov.
While Moscow has complained loudly over discrimination
against the many Russian firms that use Cyprus as an offshore
centre, the Kremlin is also reluctant to create the impression
that it approves of structures that have facilitated large-scale
capital outflows from Russia.
Putin coined the term 'de-offshorisation' in his first
state-of-the-nation address after winning a third Kremlin term
last year, and has made bolstering Russia's ability to withstand
external financial shocks a policy priority.
"Putin is against any offshores," said Andrei Goltsblat, a
business lawyer who advises clients on Cyprus as managing
partner of Moscow-based law firm Goltsblat BLP.
Prime Minister Dmitry Medvedev - who ranks below Putin in
the ruling hierarchy - earlier criticised the bailout deal that
will inflict heavy losses on uninsured deposits of over 100,000
euros at the two main Cypriot banks.
"The stealing of what has already been stolen continues,"
Medvedev was quoted by news agencies as telling a meeting of
Siluanov, however, backed a cleanup of the Cypriot banking
sector that will see Cyprus Popular Bank close and its
insured deposits shifted to Bank of Cyprus. Completing
that restructuring would be a requisite for easier loan terms.
Russia has a significant banking presence in Cyprus through
a subsidiary of state-controlled VTB, Russian
"It is in our interest for the banks to work well, for them
not to be encumbered with any (bad) debts - including VTB's own
subsidiary," Siluanov told Reuters. "They should keep working
and not be the source of any burden."
Russians are believed to account for most of the 19 billion
euros of non-EU, non-bank money held in Cypriot banks at the
last count by the central bank in January. Of 38 billion euros
in deposits from banks, 13 billion came from outside the EU.
More importantly, Cyprus is the source of around a quarter
of foreign direct investment into Russia - much of which
originates in Russia - and of foreign lending to Russia. That,
say lawyers and financial advisers, has less to do with
suspected money laundering than an extremely favourable double
taxation treaty struck between Cyprus and Russia in the 1990s.
Speaking after the meeting with Medvedev, First Deputy Prime
Minister Igor Shuvalov said losses to Russian investors in
Cyprus were not yet clear, but added that VTB's Cypriot unit
would not be affected by measures taken by the government there.
He added that he believed it would not be necessary for
Russia to provide any additional financial assistance to Cyprus.
"What is happening is a good signal to those who plan to
move their capital to ... Russian banks," Shuvalov was quoted as
saying. "We have very stable banks."