Saving Cyprus: IMF approves $1.3bn rescue package

The IMF has approved a three-year, $1.3 billion loan to jump
start recovery in Cyprus and restore financial credibility to its
indebted banking industry.

The funds will be distributed to stabilize the banking industry,
tame the state deficit, and to restore economic growth on the
island.

The IMF announced on Wednesday it had approved the first $111
million (86 million euro) installment of the loan, which was made
immediately available to the Cypriot government. The next
installment of $1.3 (1 billion euro) will be wired before June
30th, 2013 and fostered by the European Stability Mechanism, based
in Luxembourg.

The bailout is part of a $13 billion (10 billion euro) monetary
package funded by Troika lenders over the next three years.The
financial assistance is intended to prevent a further crisis and to
revive the economic pulse of the debt-stricken nation.

The loan “is intended to stabilize the country’s financial
system, achieve fiscal sustainability, and support the recovery of
economic activity to preserve the welfare of the population,”

the IMF said in a statement.

Klaus Regling, chief of the European Stability Mechanism, said
on Monday, “The loans granted by the ESM help to maintain financial
stability in the euro area and buy time for Cyprus. This time
enables Cyprus to undertake the reforms necessary to rebuild its
economy on a sustainable basis.”

This is the fourth eurozone loan from the IMF crisis
lending fund. Greece, Portugal, and Ireland have all received
bail-out support from IMF lending. Taking out loans from the IMF
increases the organization’s power in the eurozone. The more debt
it owns, the more influence it holds over policy.

Cypriot women supporters of left-wing political parties hold a protest outside the parliament in the capital Nicosia on April 30, 2013. (AFP Photo)

The IMF is optimistic at Cypriot prospects, but is still
cautious about a possible debt relapse.

“Challenges ahead are significant, including restoring
credibility in the banking sector and reducing fiscal deficits and
debt to sustainable levels,”
IMF Managing Director Christine
Lagarde said of Cyprus.

“There is no room for implementation slippages.”

On Wednesday, the EU statistics office confirmed the 17 nation
eurozone remained in recession with an overall regional contraction
of 0.2 percent in the first financial quarter, from January to
March. 

The Cypriot economy shrank by 1.3 percent.

Official figures show France has returned to its second
recession in four years, as the economy shrank by 0.2 percent in Q1
of 2013, after shrinking the same amount in the final of quarter of
last year.

The eurozone’s strongest economy, Germany, also showed some
sluggish signs of growth. GDP grew by just 0.1 percent in the first
quarter, far less than 0.3% expected by economists, showing
sluggish signs of growth.

The Netherlands, which entered recession three months ago, also
showed contraction, with GDP falling by 0.1 percent in the first
quarter of this year. Once one of the strongest-looking members of
the eurozone, the Netherlands suffers from rising unemployment and
the housing market bubble bursting.

This article originally appeared on : RT