Steady en­vi­ron­ment and sound fis­cal pol­icy led Cyprus back to the mar­kets, says ESM

Financial Mirror (Cyprus) - - FRONT PAGE -

Cyprus re­turned to the mar­kets due to its steady po­lit­i­cal en­vi­ron­ment, sound and over-per­form­ing fis­cal pol­icy, a cred­i­ble debt man­age­ment strat­egy and favour­ing mar­ket con­di­tions, ac­cord­ing to the main con­clu­sions of a spe­cial Euro­pean Sta­bil­ity Mech­a­nism (ESM) re­port on the four coun­tries ex­it­ing the res­cue pro­gramme – Cyprus, Ire­land, Spain and Por­tu­gal. The spe­cial re­port has been con­ducted un­der Rolf Strauch, ESM Head of Eco­nomics, Pol­icy Strat­egy and Bank­ing Mem­ber of the Man­age­ment Board, while the part on Cyprus was a con­tri­bu­tion by Phae­don Kalo­zois of the Pub­lic Debt Man­age­ment Of­fice, the Cyprus News Agency re­ported.

Ac­cord­ing to the re­port, the first and most im­por­tant goal was to re­store in­vestor con­fi­dence by ful­fill­ing com­mit­ments and by be­ing trans­par­ent and re­li­able. The abil­ity to swiftly im­ple­ment mea­sures to remedy macroe­co­nomic and fis­cal prob­lems is very im­por­tant for con­vinc­ing in­vestors to re­main ac­tive in a sov­er­eign mar­ket dur­ing a cri­sis, the re­port says. Equally im­por­tant, it notes, is the proper man­age­ment of the fi­nan­cial sys­tem.

“Any fi­nan­cial cri­sis takes time to set­tle, how­ever in­vestors ex­pect to see at least a grad­ual but clear progress.”

The re­port rec­om­mends to have in place a cred­i­ble and ra­tional MTDS, to be ready to take ad­van­tage of favourable mar­ket de­vel­op­ments, but never on an op­por­tunis­tic ba­sis. Even in cases of cri­sis and dif­fi­culty in ac­cess­ing the mar­ket, it is im­por­tant to main­tain con­tact with mar­ket par­tic­i­pants and de­velop a trans­par­ent re­la­tion­ship with in­vestors in or­der to fa­cil­i­tate re-en­try into the mar­ket, it says. Above all, it sug­gests to con­tinue on the path of sus­tain­able eco­nomic poli­cies safe­guard­ing long-term fis­cal sus­tain­abil­ity.

“The pol­icy frame­work de­scribed above en­abled Cyprus to im­prove all risk in­di­ca­tors associated with pub­lic debt and to re-es­tab­lish mar­ket ac­cess,” it points out.

Cyprus used only about EUR 7.25 bil­lion of the ap­proved EUR 10 bil­lion bailout pro­gramme which did not al­low for the re­pay­ment of a num­ber of do­mes­tic govern­ment bonds that were due to ma­ture within the of­fi­cial pro­gramme pe­riod.

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