Cyprus Loan Revision From Russia In Limbo

A Cypriot plan to confiscate up to 9.9 percent of depositor savings, which could hit Russian investors who hold about 30 percent of 68 billion euros ($88 billion) in banks on the island may have put in jeopardy the restructuring of a 2.5 billion-euro ($3.2 billion) Russian loan, said former Finance Minister Alexei Kudrin.
“The EU should look for a solution with Russia through joint negotiations and not unilaterally,” Kudrin told reporters in Moscow. “If it’s done unilaterally, then Russia will be less accommodating about the conditions of the restructuring.”
While it seems partial losses for depositors are inevitable, the Cypriot authorities should negotiate a deal with account holders, he said. “I think the tax decision won’t be approved,” Kudrin said. “The government coalition is collapsing because it’s not prepared to vote for this decision.”
A double-tax avoidance treaty and low tax rates have made Cyprus a lure for Russians to move money into and out of their country. Including bank deposits and loans to companies registered in Cyprus, Russia’s exposure is about $60 billion, Moody’s Investors Services estimates. But the EU said it fears the island’s banks may also be a money-laundering haven for rich Russians and mobsters.
Russia may reconsider its role in the Cyprus bailout because it wasn’t consulted about the bank tax, Finance Minister Anton Siluanov, who succeeded Kudrin at the post, said according to state news service RIA Novosti. He said last month that Russia was willing to restructure the loan it gave in 2011 and possibly agree to a lower interest rate. Russian President is also furious over the plan.
Cypriot President Nicos Anastasiades is trying to persuade lawmakers to back the plan to impose losses on the nation’s depositors as part of a 10 billion-euro ($13 billion) rescue aimed at preventing a financial collapse and a possible departure from the Eurozone. After fierce opposition, it was revised to exempt those with less than 20,000 euros in the bank, but those with up to 100,000 euros will have 6.75 percent of their money taken by the government, which is violating its own law to guarantee the safety of the deposits.
While it’s been denied by the President’s office, it was reported that Anastasiades wanted to include small savers so he wouldn’t have to put a bigger tax on the rich and alienate them and push them to move their money to other tax havens, such as Luxembourg, Lichtenstein, Switzerland, and London.
Cyprus could meet its target of generating 5.8 billion euros ($7.5 billion) by imposing a 15.6 percent levy on bank deposits of more than 100,000 euros and no levy on deposits below that amount, an EU official said on condition of anonymity, but that appears to have been scrapped in favor of taxing those with 20,000-100,00 euros, for some of them their life savings.