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The crisis in Cyprus threatens investments in Russian economy

March 27, 2013, 11:02 UTC+3

The newspapers continue to comment on the aftermaths of the Cypriot crisis for world and Russian economies

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The newspapers continue to comment on the aftermaths of the Cypriot crisis for world and Russian economies.

According to the conditions of financial aid to Cyprus by the Troika of creditors (the European Union, the International Monetary Fund and the European Central Bank) two largest Cypriot banks – the Bank of Cyprus and the Popular Bank of Cyprus – will pass through the procedure of restructuring, the Kommersant daily recalled. The latter will be liquidated and the monetary funds on the bank deposits of over 100,000 euros will be frozen for an indefinite period of time, the losses of these bank deposits may reach 3040%. The writing off of amounts will affect not only the very deposits, but also non-interest current accounts.

“According to the international terminology, the deposit is not only a deposit in the usual Russian meaning (with the interest rate), but also any on-call money, and all these monetary funds come under the effect of the Cypriot deposit tax,” partner of the management company Spectrum Partners Maxim Kuzin told the newspaper.

Possible losses of the depositors from Russia from the write-off procedure cannot be estimated accurately, as a total sum of the assets, which were deposited in the Cypriot banks not from the euro zone, makes 20 billion euros, meanwhile, the share of deposits of over 100,000 euros on average in Cypriot banks makes 55%. “There are some signals from the companies. The monetary funds were accumulated on the deposits to carry out some deals, either on the interbank foreign exchange market or with corresponding accounts. There are no loud appeals for the aid,” First Deputy Prime Minister Igor Shuvalov said on Tuesday. For his part, Finance Minister Anton Siluanov urged the Cypriot authorities not to spread the capital movement restrictions on the banks, which meet the standards.

PwC partner Mikhail Filinov believes that the Bank of Cyprus would sooner impose some restrictions on withdrawing the monetary funds from the bank accounts. Vague deadlines of the restrictions have already brought about the first alarming forecasts in Russia. On Tuesday, Valery Mironov from the Centre of Development of the Higher School of Economics estimated the losses of the Russian residents at 30 billion euros (1.5% of GDP), if “a bad scenario” is fulfilled (the freezing of big bank deposits and the restrictions on the capital withdrawal from the island).

Meanwhile, the Centre of Development of the Higher School of Economics believes that Russian economy will fail to avoid the losses in case of any scenario. These losses will be caused by the putting the financial settlements centers under other jurisdictions that will result in a slower investment activity in Russia. According the Russian Federal State Statistics Service, about 25% of all direct foreign investments fell on Cyprus in 2012, and all direct foreign investments have made 6.7% of investments in the economy.

The depositors, who opened the deposits of over 100,000 euros at the Bank of Cyprus, may loss up to 40% of their funds on the deposits. Cypriot Finance Minister Michael Sarris, who is cited by the Vedomosti daily, made public this figure.

Russian companies will certainly turn out to be most affected, the newspaper reported with confidence. These companies are already searching for new banks to deposit their monetary funds, for instance, some part of the capitals may be transferred to Latvia. But the most likely place for Russian money can become the Netherlands, which grants major tax benefits, which are comparable with the taxation regime in Cyprus. Contrary to the island the Netherlands did not cancel an agreement with Russia over the avoidance of double taxation in order to introduce new mechanisms of the struggle against illegal schemes.


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