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Τroika divided over Cyprus

28/01/2016 10:10
The international creditors appear to be divided over the Cyprus economic adjustment program just few months before its completion.

In contrast with the European Commission and the ECB, which were not able to disburse the January tranche due to non fulfillment of the conditions set, the International Monetary Fund has decided to proceed to the disbursement of €126 mn.

With this installment, the total assistance provided by the Fund to Cyprus since 2013 reaches €1 bn.

In its announcement, the IMF expresses a positive view for the economic and fiscal results and highlights the stability of the banking system. At the same time, it makes extensive references to the need to continue reforms.

Its reference to privatization is rather lukewarm.

It makes however clear references to the need to restructure the public and semi-public sector, the supervision and governance of the Central Bank and avoid granting tax incentives to attract investment.

Unlike in the previous disbursement, this time the IMF does not mention "success".

It is the first time that the international creditors of Cyprus appear as differentiated on major issues that are a reference point in the loan agreement, such as the ownership unbundling of EAC and the privatization of Cyta.

An EU technocrat involved in the negotiations on the Cyprus evaluation program told StockWatch that the EU and the ECB strongly maintain their demands in relation to the privatization of semi-governmental organizations, and specifically Cyta.

These two institutions, he said, unlike the IMF, have set prior actions and the tranche of €350 mn will be disbursed only if these are fulfilled.

The Cypriot authorities are aware of the attitude of the EU and the ECB, and the government's concern focuses on the possible consequences as far as international rating agencies are concerned, in case of failure to push reforms forward, or in case of a possible fiscal regression.

As the spokesman of the ruling party DISY Prodromos Prodromou stated to StockWatch, the government considers almost certain that in their upcoming report on the Cypriot program, the European Commission and the ECB will point out the inability to meet institutional changes and reforms in the public and semi-public sector.

At the same time, there are concerns at the Ministry of Finance and the DISY headquarters, not so much for the possible non-disbursement of the tranche, but for the fact that the discussion and adoption by the parliament of the draft laws on reform in the public sector and in particular that of the state payroll are continually pushed to a later stage.

Time is running out as the parliament on April 14 will suspend its work ahead of the May elections.

This is corroborated by the statements of the Chairman of the Finance Committee of the House and President of DIKO Nicholas Papadopoulos to StockWatch on Monday. Mr. Papadopoulos faulted the government for delaying the submission of relevant bills to the point that their thorough discussion and approval is now unlikely.

DISY is concerned that with the country out of the memorandum and without the possibility of a forceful intervention by the creditors, reform in the public sector and privatizations may never occur.