Foreign Policy November - December 2015

“yprus’s reform program remains a success,” International Monetary Fund (IMF) Deputy Managing Director Mitsuhiro Furusawa said in September, after a review of the island’s progress. “Economic activity in the first half of the year has been better than expected, and fiscal outturns are running ahead of projections. Liquidity in the core banking system has continued to improve and the prospects for resolving non-performing loans are improving.” Furusawa went on to say that “the strong fiscal performance is impressive.” Nevertheless, he cautioned, high public debt, together with sizeable contingent liabilities, warrants continued prudence while ensuring support for growth-enhancing public spending and the safety net. “Reform efforts should focus on advancing public administration, improving the management of government guarantees, and strengthening revenue administration.” Speaking earlier, President Nicos Anastasiades said that after a string of…

President Nicos Anastasiades, president of Cyprus since 2013, is a lawyer with postgraduate studies in shipping law at University College London. Born in 1946 and married with two daughters, he was elected to parliament in 1981 and in recent years has challenged some members of his own broadly center-right Democratic Rally party by working toward reunification of the island. Addressing the UN General Assembly in September, Anastasiades said: “I strongly believe that reaching a solution on the Cyprus problem can become a paradigm of how diplomacy and the adoption of a reconciliatory stance can contribute to the resolution of even the most difficult international issues, prevailing over mistrust.” What is your assessment of the island’s new hydrocarbons discoveries in its offshore exclusive economic zone? This discovery, and the prospect of further new discoveries, have…

Ever since the 2012 financial crisis hit Cypriot banks, survival has been the name of the game. “We have been shrinking the bank to strength,” said Bank of Cyprus CEO John Hourican, an award-winning Irish banker drafted in to help save the country’s largest financial institution in terms of market capitalization after the system suffered what he called “a massive cardiac arrest.” Cyprus had an overlarge banking sector, with assets valued at six times gross domestic product (GDP) before the crash. Banks were exposed to overleveraged real estate investors and the Greek and Cypriot governments, while European Union (EU) countries, in particular Germany, were reluctant to see their own taxpayers put on the hook to bail out depositors who included many rich Russians stashing their cash in a low-tax haven. The result…

○ BANK OF CYPRUS Origins: establishment and operation of the Nicosia Savings Bank, 1899 Branches: 136 (130 in Cyprus, 1 in Romania, 4 in the United Kingdom, and 1 in the Channel Islands); representative offices in Russia, Ukraine, and China Products and services: retail and commercial banking, finance, factoring, investment banking, brokerage, fund management, private banking, and general and life insurance Recent highlight: A €1 billion share capital increase was completed in September 2014, involving highquality institutional investors such as the European Bank for Reconstruction and Development (EBRD) and Wilbur Ross. This significantly strengthened the bank’s capital position; it passed the European Central Bank (ECB) Comprehensive Assessment in October 2014. ○ HELLENIC BANK Origins: started operations in 1976 Branches: more than 60 in Cyprus, employing 1,400 people; representative offices in Russia (Moscow and St. Petersburg) Ukraine, and…

One of the biggest challenges facing the Cypriot banking sector is nonperforming loans (NPLs), which stood at 47.8 percent in September, according to the Central Bank. For some banks, the ratio is even higher. Earlier this year legislators voted to facilitate foreclosures— a requirement of the European Central Bank (ECB) for Cyprus to benefit from the ECB’s sovereign bondbuying program. The new law protects mortgages of up to €250,000 on a person’s principal home, but beyond that allows for repossession and auction. It is designed to end a system whereby banks could take twenty years to recover bad loans, even from people with ample assets. But many politicians opposed the law, painting it as a mechanism for banks to throw families onto the street. “We need to start driving up the behavior…

The government’s Cyprus Investment Promotion Agency (CIPA), lists twenty-seven projects ready for foreign investors. Most are in tourism, not surprising given the warm Mediterranean climate with virtually year-round sunshine, sea bathing, and golfing. But there are also residential developments, medical centers, educational institutions, waste-fired and solar power generation, and high-end shops and offices, plus the island’s traditional strength in shipping, the upcoming privatizations, and the significant offshore oil and gas discoveries. “Despite the financial program that contains several tax reforms, Cyprus maintains its position as a taxefficient jurisdictional hub,” lawyer Anastasios Antoniou explained. “That aspect is pivotal and integral in Cyprus’s economy.” The country prides itself on having one of Europe’s most attractive tax systems, which is nevertheless transparent and fully compliant with EU laws and regulations. CIPA notes that dividend income,…