A NCIIAL MII ROR THIISS WEEK

Financial Mirror (Cyprus) - - FRONT PAGE -

A mys­tery seller of Laiki shares rocked the stock mar­ket with the CSE drop­ping to a 8-year low, with the only good news of the week com­ing from a re­port that for­eign di­rect in­vest­ments were up 35% in 2003, the Fi­nan­cial Mir­ror re­ported in is­sue 588, on Septem­ber 29, 2004.

A mys­tery sell or­der of up to 1.9 mln Laiki Bank (CVPB) shares rocked mar­ket sen­ti­ment on the CSE, as the in­dex at­tempted to sta­bilise but dropped to an 8-year low. The place­ment of such a huge sell to 4.3% and the fis­cal deficit as a per­cent­age of GDP set to come down to 3%. Im­prove­ment was also recorded in three key ar­eas noted by the IMF in the pre­vi­ous year’s re­port: re­cov­ery of com­pet­i­tive­ness through wage mod­er­a­tion, fis­cal con­sid­er­a­tion and struc­tural re­form, pri­mar­ily in the fi­nance sec­tor. The IMF also agreed with gov­ern­ment forecasts that the growth rate will ac­cel­er­ate, in­fla­tion will de­cline and the cur­rent ac­count will re­main broadly in bal­ance. De­lays were noted in restor­ing in­vest­ments, more lib­eral trade pol­icy, free in­ter­est rates de­ter­mined by mar­ket forces. The IMF re­port was also frank in say­ing that in or­der to al­low a re­cov­ery of profit mar­gins and im­prove­ment in com­pet­i­tive­ness, which in turn will help in­crease in­vest­ments that are at a his­tor­i­cal low and the stock or­der in mul­ti­ple lots from CYP 1.25 to 1.30 for about 1.5 mln shares added to jit­tery nerves amid fears that a ma­jor share­holder is at­tempt­ing to set­tle scores with the bank through the Ex­change, by driv­ing the share price lower. Bro­kers pointed the fin­ger at Univer­sal Life that has been in con­flict with the bank for quite a while, de­spite a fresh thaw of in re­la­tions in the run-up to a pos­si­ble sale of Laiki’s stake in UL to the Eureko Group, a deal that will not be con­cluded after all.

For­eign di­rect in­vest­ment slows into Cyprus in­creased by 35% to USD 830 mln in 2003, from USD 614 mln in 2002, ac­cord­ing to the UNCTAD an­nual World In­vest­ment Re­port. Cyprus ranked 24th in rank­ings, while out­ward FDI flows from Cyprus rose to USD 345 mln in 2003 from USD 299 in 2002.

The pro­jected bud­get deficit for 2004 is seen at 5.2% of GDP and even lower ac­cord­ing to Fi­nance Min­is­ter Makis Ker­avnos, if the rev­enue rais­ing mea­sures gen­er­ate the de­sired re­sults, but no firm decision ha been taken when Cyprus will ap­ply to join the ERM II. The gov­ern­ment is hop­ing to bring the fis­cal deficit down by sev­eral points in 2005 to a tar­get of 2.9%, just be­low the 3% max­i­mum ceil­ing set by the EU in or­der to be el­i­gi­ble to join the sin­gle cur­rency mech­a­nism and then adopt the euro.

In two sep­a­rate ar­ti­cles, econ­o­mists were de­bat­ing sub­jects that are all too fa­mil­iar nowa­days: Dr Ste­lios Platis was writ­ing about “Bank­ing Sec­tor: The need for bet­ter (risk man­age­ment) prac­tices”, while Dr Jim Leon­ti­ades of the CIIM Business School was ar­gu­ing about “Aus­ter­ity (Cypriot style)”. (Ed’s Note: Too bad th­ese opin­ions fell on deaf ears, as usual) mar­ket unattrac­tive, in the next few years real wage growth will have to be lower than the pro­duc­tiv­ity growth and swift amend­ments should be brought to the COLA wage in­dex­a­tion sys­tem. The re­port con­cluded that Cyprus has to take the painful mea­sures re­quired to stay com­pet­i­tive and pros­per in the fu­ture. There is no turn­ing back. (Ed’s Note: Ahh, if only our politi­cians of 20 years ago had the courage, we would not be in the mess we are to­day…)

Cyprus Popular Bank (Laiki) took the lead as the most prof­itable bank in the first six months of the year, with op­er­at­ing prof­its up 15% to CYP 13.92 mln, with Bank of Cyprus up 12.3% to CYP 13.05 mln and Hel­lenic up 14.3% to CYP 2.3 mln.

The re­cent strikes by Cyprus Air­ways staff on the ground and in the air has cost the air­line “tens of thou­sands of pounds”, while other es­ti­mates put it at CYP 200,000.

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