Cyprus Will Lift Capital Controls In Months

Depositors of the National Bank of Cyprus protested plans to seize much of their accounts and a limit on how much they can withdraw

BRUSSELS – Cypriots who’ve been under a daily withdrawal limit at state banks since March will be able to take out what they want within a few months, Finance Minister Harris Georgiades said.

That was at odds with previous government statements that the capital controls imposed in return for a 10 billion euro ($13.7 billion) international bailout could linger potentially for years. Georgiades said they will be lifted within months, although previous similar promises were later withdrawn amid fears of a run on the banks.

Account holders are limited to only 300 euros ($405 per day) withdrawals and while terms for businesses are more lenient they are still strangling their ability to operate, owners have complained.

Cyprus in March sought the rescue package after incoming President Nicos Anastasiades said he discovered state banks were worse off than he thought and had suffered 4.5 billion euros ($6 billion) in losses with big holdings in devalued Greek bonds and bad loans to Greek businesses that went belly-up in that country’s crushing economic crisis.

Anastasiades also reneged on a promise not to seize bank accounts after he relented to demands from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) to confiscate 47.5 percent of those over 100,000 euros ($137,000) to save the banks. No bank executives have been charged with wrongdoing or reprimanded for ruining their institutions.

The aid, however, was given on the toughest terms to date in the euro crisis, forcing the closure of one of the country’s two biggest banks as well as heavy losses on big savers including wealthy foreigners.

“Already the restrictions which are in place now are much looser than they were in March,” Georgiades said on the sidelines of a meeting of European Union finance ministers.

“The intention is to maintain pace and momentum not in abstract terms, but in very specific terms that will relate to their relaxation and eventually their full lifting. It is a progression of months not years.”

While controls on the movement of capital within Cyprus are already set to be removed early next year, Georgiades’ comments signal that rules restricting the movement of money outside of the country will also soon be lifted.

The full removal of capital controls is essential, some analysts and government officials have said, to restoring trust in the banking system although fears remain that customers could yank out all their money, anxious that the government could come back for more.

Financial transactions in Cyprus are now vetted, and there are daily cash withdrawal limits at banks. The latest ECB data shows Cyprus has lost about 30 percent of its deposit base over a 17-month period.

But Georgiades said this was part of the planned scaling down of a once over-sized banking sector. The European Commission, the IMF and the ECB said the country had made good progress in meeting the terms of its $13bn bailout program.