ESM ap­proves next tranche of € 100 mln

Financial Mirror (Cyprus) - - FRONT PAGE -

The Euro­pean Sta­bil­ity Mech­a­nism (ESM) has ap­proved the dis­burse­ment of EUR 100 mln to Cyprus as part of the EUR 9 bln fi­nan­cial as­sis­tance of which EUR 5.8 bln has been paid so far.

The ESM board in Lux­em­bourg said that the pay­ment “fol­lows the pos­i­tive as­sess­ment of the sixth quar­terly re­view of Cyprus’s macroe­co­nomic ad­just­ment pro­gramme and ap­proval of the sup­ple­men­tal Mem­o­ran­dum of Un­der­stand­ing with Cyprus by the ESM Board of Gover­nors.”

ESM Man­ag­ing Di­rec­tor Klaus Regling said that he was pleased that Cyprus’s ad­just­ment pro­gramme is back on track.

“The le­gal frame­work for a new fore­clo­sure pro­ce­dure has en­tered into force, and there has also been a sub­stan­tial re­form of cor­po­rate and per­sonal in­sol­vency laws. These new reg­u­la­tions en­able the coun­try to ef­fec­tively deal with the prob­lem of non-per­form­ing loans (NPL). I trust that the gov­ern­ment will con­tinue its re­form ef­forts so that Cyprus can sus­tain eco­nomic re­cov­ery.”

Regling added that “progress in Cyprus con­firms that with strong own­er­ship by a gov­ern­ment our ap­proach to grant a loan in ex­change for eco­nomic pol­icy con­di­tions works. This has also been demon­strated by the suc­cess­ful pro­gramme con­clu­sions in Ire­land, Por­tu­gal and Spain.”

Cyprus ap­plied for the “bailout” fi­nan­cial as­sis­tance on 25 June 2012 and the key el­e­ments for a macroe­co­nomic ad­just­ment pro­gramme were agreed by the Eurogroup on 25 March 2013 aim­ing to ad­dress the fi­nan­cial sec­tor im­bal­ances in­clud­ing an ap­pro­pri­ate down­siz­ing of the coun­try’s fi­nan­cial sec­tor, fis­cal con­sol­i­da­tion, struc­tural re­forms and pri­vati­sa­tion.

The agree­ment paved the way for a EUR 10 bln pack­age, of which the ESM un­der­took EUR 8.968 bln and the In­ter­na­tional Mon­e­tary Fund (IMF) around EUR 1 bln.

The first tranche of fi­nan­cial as­sis­tance was pro­vided in two sep­a­rate dis­burse­ments of EUR 2 bln on 13 May 2013, and EUR 1 bln on 26 June 2013. The sec­ond tranche, in the form of EUR 1.5 bln of ESM float­ing rate notes, was dis­bursed on 27 Septem­ber 2013 for the re­cap­i­tal­i­sa­tion of the co­op­er­a­tive bank­ing sec­tor, which has since been re­struc­tured and is presently gov­ern­ment-owned.

The fa­cil­ity was de­signed to cover Cyprus’s fi­nanc­ing needs in­clud­ing bud­getary fi­nanc­ing, the re­demp­tion of medium and long-term debt, and the re­cap­i­tal­i­sa­tion of fi­nan­cial in­sti­tu­tions ex­cept the coun­try’s two largest banks (Bank of Cyprus and Cyprus Pop­u­lar Bank, which were sub­ject to restruc­tur­ing and res­o­lu­tion).

The re­main­ing ESM trans­fers were EUR 100 mln on 19/12/2013, EUR 150 mln on 04/04/2014, EUR 600 mln on 09/07/2014 and EUR 350 mln on 15/12/2014. The weighted av­er­age ma­tu­rity of loans is 14.88 years.

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