RUSSIA does not intend to grant Cyprus an interstate loan because the associated risks are too great to be assumed by any single creditor, Russia’s deputy finance minister has said.
“We have no specific plans or instructions to do so,” Sergei Storchak said in a December 24 interview with news agency Bloomberg in Moscow.
“It’s obvious that no single creditor can work with Cyprus alone,” he added. “Anyone who steps up on an individual basis to finance that country’s government or to help recapitalise its banks would be taking an enormous risk.”
Earlier, Russian President Vladimir Putin had said his country would consider giving financial assistance to Cyprus as a part of an international rescue package after the euro area takes a unified stance on aiding the island.
Expanding on this, Storchak said Russia does not rule out taking part in a bailout, though not as “major creditors.”
If a group of lenders were formed to help Cyprus, it would be based on Cyprus’ membership in the European Union, he said.
Last year Cyprus borrowed €2.5 billion from Russia to help the government stabilise its finances; that loan matures in 2016.
And earlier this year, it emerged that the administration was seeking an additional €5 billion from Russia; the lion’s share of a new loan would have gone towards propping up the banks and thus avoid resorting to the EU support mechanism.
Cyprus’ two largest lenders currently need a combined €2.3 billion to recapitalise. The government’s inability to borrow from markets – given the sovereign junk bond rating – to bolster the banks forced it to request EU assistance back in June.
Cyprus may need as much as €17.5 billion, almost the size of its economy, to pay its bills and recapitalize banks, Finance Minister Vassos Shiarly has said.
The island’s public debt is forecast to exceed 89 per cent of gross domestic product (GDP) this year – not counting the banks’ capital needs.
Back in May, the state pledged to underwrite Popular Bank’s attempt to raise €1.8 billion in equity, after private demand for shares in Popular’s rights issue was minimal.
There is growing speculation that the country’s debt to GDP ratio – a key indicator of the health of an economy – could reach 120 per cent, the level deemed unsustainable by the International Monetary Fund.