New haircut rumblings dismissed

 The Cyprus Mail 28/02/13

DISY said yesterday that statements made by a European Central Bank policymaker not ruling out a haircut of bigger depositors in Cypriot banks, only served to undermine the credibility of the eurozone.

Reuters yesterday reported ECB policymaker Benoit Coeure as saying that depositors in Cypriot banks should not be forced to take losses across the board as part of a eurozone rescue of Cyprus,  but he did not rule out making the biggest depositors share some of the burden.

Speaking at a Reuters Summit on the future of the eurozone, Coeure said it was essential to ensure that Cypriot debt was reduced to a manageable level and that the cost of the bailout was fairly shared and not just footed by taxpayers.

Germany, Finland and some other eurozone countries are pushing for bank depositors and other investors in Cyprus to carry some of costs of a bailout, both to shield their taxpayers and because of suspicions that wealthy Russians and others have used the island to stash possibly illicit funds.

Opponents of such a move are concerned it could trigger a bank run and further undermine trust in the eurozone, rekindling the worst of the debt crisis.

 In a statement yesterday responding to the reports, DISY repeated categorically Cyprus’ stance that there would be no haircut on deposits.

Eurozone finance ministers will discuss the package for Cyprus at a meeting in Brussels on Monday, with Germany and France pressing for a decision by the end of March.

"All solutions should be explored," Coeure said. "I wouldn't include a general bail-in of depositors as part of the solution given the risks that it would pose for financial stability.

"So I think the possible bailing-in of depositors across the board is not an option that can be envisaged given this hasn't been done in any country. It would be entirely new and I don't think it's time to make experiments now."

Pressed to say if that left open the possibility of a narrower bail-in of deposits above the EU-guaranteed threshold of 100,000 euros, he said: "There needs to be an appropriate burden-sharing in the programme because we need to achieve debt sustainability. But no bail-in across the board.

"I don't pre-judge any instruments because the vocabulary matters and there are many ways to achieve burden-sharing."

Asked if that was his personal view or that of the ECB board, Coeure said: "I'm pretty sure that (Mario Draghi) is comfortable with the way I've phrased it. No bail-in across the board of depositors."

Having bank account holders bear some of the costs is a risky strategy not only because there is no precedent in the previous bailouts in the eurozone debt crisis, but also because it raises the risk of a run on Cypriot banks.

Cyprus has a bloated banking system with deposits that reached more than €70 billion, although latest figures show that deposits reached their lowest levels in three years in January, according to a statement released by the Cyprus Central Bank.

Last month saw a significant outflow of deposits from the domestic banking system, with €1.73 billion taken out of banks, representing a 2.5 per cent reduction compared to December.

January deposits dropped to €68.42 billion from €70.15 billion the month before, marking the lowest level in three years.

Around a third of the deposits in Cyprus are from non-residents, including many Russian and British businesses.

One proposal for having depositors foot the bill would involve freezing any amounts above 100,000 euros with the total held in an escrow account and used either to shore up the capital of the banks or as collateral for loans.

Cyprus, which elected a new, conservative president on Sunday, is adamantly opposed to the bailing-in of depositors or bondholders, concerned that it will destabilise its already shaky economy and undermine its business model.

But there may be no way to avoid such a move if the European Central Bank, the IMF and the European Commission, together known as the troika, agree that such a step is necessary to make Cypriot public debt manageable.

Citiizen participation as success formula to check corruption in Spain

"The best way to minimize corruption entails, in the first place, institutional reforms to introduce a system of checks and balances within the institutions themselves, so there is no exclusive dependence on the limited attention of auditing bodies," says Víctor Lapuente. After obtaining a PhD in political science from Oxford, Lapuente went on to teach at The Quality of Government Institute at the University of Gothenburg, where he researches corruption and government reform. In a recent article published in EL PAÍS - John Wayne, Salander and Spain - Lapuente defended citizen participation as a successful formula to check corruption. But this would require an overhaul and de-politicization of government agencies at all levels.

Question. What are the keys to real administrative reform?
Answer. Countries with the most efficient governments - Canada, New Zealand, Scandinavian countries, the Netherlands - have what we might call the administrative infrastructure. They seek a balance between political impetus and day-to-day management carried out by independent professionals. The separation between the political and administrative spheres is not so clear in Spain, and what we see here is a fratricidal fight between one political-administrative tribe with ties to party X and another tribe with ties to party Y. Each tribe has an interest in covering up for its corrupt members in order to guarantee its own survival, and tends to make short-term decisions. Besides that, the most efficient administrations have incorporated management methods from the private sector. Spain does not have a large amount of public employees, but the civil servant status extends to the major services of the welfare state, such as education or health. This is a hindrance to administrative efficiency.

  EL PAIS http://elpais.com/elpais/2013/02/27/inenglish/1361974079_632839.html

Italy halts austerity and increases chaos in Europe

Fears that deadlock will lengthen Italy's two year recession and spill over into the rest of the eurozone hit markets across Europe

Review article of The Guardian 26.02.13 

Italy decided to revive Berlusconi's political career as a withering verdict on cuts and taxes. After three years of austerity leading by Germany and budget cuts aiming to save the Eurozone Italians have spoken. 

Italy's humiliated caretaker prime minister, Mario Monti, meant that the spending cuts and tax rises dictated by the eurozone would grind to a halt, risking a re-eruption of the euro crisis after six months of relative stability.

Despite the withering popular verdict on cuts and taxes, Brussels and Berlin insisted the auterity programme had to be continued in Italy. France and other seized on the outcome for their own purposes, arguing for a relaxation of spending cuts and greater emphasis on policies to boost growth and job creation.

The Italian stalemate combines with tough negotiations over a bailout for Cyprus, being resisted by Germany, worries about the French economy, an unresolved debt crisis in Spain and David Cameron decision to throw Britain's future out of question, making very difficult to take any decission in Europe. 

The European Commision echoed the calls for sticking with the austerity medicine. Italy has the highest debt level in the eurozone after Greece, although its budget deficit is in better shape than many others such as France or the Netherlands. 

Spain, in the meantime, waited anxiously to see what impact the Italian leap in the dark would have on its debt crisis. " This is a jump to nowhere that does not bode well either for Italy or for Europe" said the foreign minister, Jose Manuel Garcia-Margallo, adding he was "extremely concerned" about the effect on Spain's borrowing costs.

Both Berlusconi and Grillo have been harshly critical of the Germans, decried Monti's austerity packages, and have raised questions as to whether Italy, the eurozone's third biggest economy, should remain in the single currency. Grillo has called for a referendum on the matter. 

Berlusconi accused the German government and the European Central Bank, to have conspired to push up the cost of Italian borrowing in 2011 in order to topple Berlusconi and bring in Monti, the technocratic darling of the eurozone elite. 

The turmoil saw Italian bond yields also jump, indicating that any new government will be forced to pay a higher interest rate on its debts. 

An apple of discord ahead

POLLSTERS agree that Nicos Anastasiades, leader of the right-wing Democratic Rally (DYSY) party, will win a run-off on February 24th to become Cyprus’s next president. He faces the huge task of negotiating a €17 billion ($23 billion) bail-out from the European Union and the IMF. Then he has to fix the economy.

Mr Anastasiades’s hopes of winning in the first round were dashed after a strong showing by Stavros Malas, the Akel (communist) candidate, who took 27% to his 45%. George Lillikas, a hardline nationalist, came third with around 25%. Observers were surprised Mr Malas did so well, given the record of the outgoing Akel president, Demetris Christofias. Thousands protested after an explosion in 2011 killed 13 people at a military base where confiscated Iranian munitions were being stored. The blast destroyed the island’s biggest power station. Yet Mr Christofias resisted calls to resign even when an official inquiry pointed to government negligence.

Mr Christofias also dragged his feet over the terms of a euro-zone bail-out, hoping in vain that Russia would offer another strings-free loan. He had earlier raised welfare benefits. The austerity to come may be harsher as a result. The jobless rate doubled while Akel was in power, to almost 15% in December. Yet fewer than one-quarter of communist voters defected. “In left-wing Cypriot families, Akel is almost a religion,”says Hubert Faustmann, a political scientist at Nicosia University.

Some other parties share Akel’s sympathies. The 60,000-strong civil service is the biggest employer and pays the highest salaries. For non-communists, the Democratic party (DIKO) is the “go-to” party for a job in officialdom. Even Mr Anastasiades’ backers oppose privatising telecoms, electricity, water and ports. Yet lenders will demand such disposals, along with a freeze on pay and pensions, on civil-service hiring and on social benefits. GDP will shrink by 1.7% this year, says the EU, and the budget deficit could hit 6% of GDP.

These figures are trifling by the dire standards of Greece. But Cyprus will still find it hard to earn its way out of trouble. The economy is too dependent on EU tourism and financial services supplied to Russian-owned companies based on the island. Large sums flow out from Cyprus back to Russia as “foreign investment.” Cyprus makes sure it complies with the letter of EU anti-money-laundering rules, but doubts persist about enforcement. Mr Anastasiades may have to accept an audit of financial services by a private firm as a condition for a bail-out deal.

One ray of hope brightens the gloom: the discovery of natural gas in the seabed between Cyprus and Israel. Noble Energy, an American company, estimates that there could be 7 trillion cubic feet of gas in the Aphrodite field, found in 2011. Oil deposits could lie beneath the gas. The Aphrodite field would pump huge sums into government coffers for two decades after 2019, the earliest date for gas exports, says Wood Mackenzie, an energy consultancy. This could help repay a bail-out loan.

An energy bonanza is no certainty. Extracting gas 1,500 metres below the seabed is costly. Gas could be used at home, but a lot would have to be exported. A new LNG plant would be uneconomic without much more gas, perhaps from Israel. A pipeline to Greece would be expensive. Any solution needs a big investment by outsiders in a risky and unstable region.

Or there could be a shorter and cheaper pipeline to Turkey. Optimists hope the gas could turn from being just another problem into a catalyst to reconcile Greek- and Turkish-Cypriots, who have lived separately since a Greek-inspired coup triggered a Turkish military intervention in 1974. Greek-Cypriot leaders talk of sharing the wealth from natural gas with the poorer Turkish-Cypriot mini-state in the north if the two are reunified. Yet several years of UN-sponsored bilateral talks during Mr Christofias’s presidency have proved fruitless. International advisers seeking to push the negotiations forward have become especially exasperated by the Greek-Cypriot mantra that “nothing is agreed until everything is agreed”.

Mr Anastasiades may do things differently. He was the only Greek-Cypriot political leader who chose in 2004 to support the Annan plan (named for the former UN secretary-general) to reunify Cyprus as a two-zone federation with a limited central government. Greek-Cypriots voted against this in a referendum by a two-thirds majority, though it was overwhelmingly backed by Turkish-Cypriots in a separate vote. It took years for Mr Anastasiades to regain political credibility.

As president he will be pressed by the UN and EU to restart talks. Cyprus’s economic ills, compared with Turkey’s health, could make progress easier. But observers of umpteen failed previous rounds will restrain their expectations.

The Economist 26/02/2013

Cypriots elect Anastasiades as new president

Democrat Nicos Anastasiades was elected yesterday as new president of Cyprus with 57.48% of the votes. Euphoric supporters were pouring into the streets of the divided island, honking horns and waving blue and white Greek flags.

The Democratic Party leader stated that there were no winners or losers in this election as Cyprus has to be unified to face the new challenges and financial problems which lie ahead.

Anastasiades confirmed that he will immediately start working on the bailout conditions with the Troika in order to sign an agreement as soon as possible. He explained that as a result Cyprus will be closer to Europe and that they will make an effort to follow European obligations. He also sent a message to the people of Cyprus that he will work to give back to Cyprus its stability and credibility.

The new president task is not easy as he will have to negotiate a bailout to avoid a disastrous default. Cypriot banks alone face a £10 billion capital hole. The government can’t afford to borrow that amount (equivalent to 50% of the GDP), since its debt is already approaching 100% of GDP, and therefore would become unsustainable.

Germany, has categorically ruled out direct recapitalization by the European Stability Mechanism. That leaves the possibility of imposing loses on the providers of capital to the Cyprus banking system. But there is not enough equity and subordinated debt to absorb the losses, so depositors would somehow have to be bailed in too.

How the Cyprus situation will be resolved could have profound consequences for the euro zone. Once again, its members must strike a balance between solidarity and sovereignty. Berlin’s preference appears to be a traditional euro-zone can-kicking exercise. But euro-zone policy makers may not have the luxury of time, particularly if loose talk of depositor haircuts continues in a country where a quarter of deposits are foreign-owned with overnight notice.

The long term future of the Eurozone is pending on Cyprus solution.

Bad news for employment permit (E-pass) seekers in Singapore

The Singapore government has presented the White Paper on its vision of the demographics of Singapore. Singapore like any other developed nation is facing very difficult decisions on immigration and foreign workforce. The population of Singapore is aging with a fertility rate of only 1.3 which has put an increasing strain on the social welfare system. The inflation rate for 2012 was 4.6% and in 2012 the economy demonstrated the weakest growth in 3 years of 1.2%.

The government solutions was to keep the door open to attract a foreign workforce. After many heated debates, the White Paper has been passed with some amendments. However, the game is not over. Singapore has seen its first public demonstration in years with people are protesting against a foreign workforce. Some Singaporeans are blaming foreigners for increased living costs and property prices. According to the Economist research, Singapore has become 6^th most expensive city for living in the world and 3^rd most expensive in Asia.

The number of work permits being issued has decreased due to cooling measures and caps already introduced by the Singapore government. New measures (for example the S$650 levy for hiring a foreign construction worker, the S$550 levy for the service industry sector and the S$500 levy for the manufacturing industry) have been imposed. There is also a restriction on the ratio of a foreign workforce to Singaporeans; 7:1 for the construction industry, 1.5 for the manufacturing industry and 0.8 for the service industry.

IMF Chief has not ruled out Bail-In option for Cyprus bank depositors

After the recent G20 meeting, the IMF Chief Christine Lagarde has not ruled out a possibility of Bail-In of Cyprus bank. A Bail-In means that Cyprus bank depositors will lose part of their deposits as a measure of saving Cyprus banks. The previous Cyprus government had never considered this outcome when it was deliberately delaying negotiations with the Troika.

If the Bail-In happens, it will have a drastic effect on the Cyprus banking system which is a haven for Russian money. The Russian officials have voiced their concern with this approach. The Russian officials are not alone in caution from Troika on this move. The credit rating agency Moody is saying that this might lead to a knock off effect on entire Eurozone banking system as this will demonstrate a move from use the EU funds to save struggling banks to shifting responsibility for it on depositors.

At this moment, the Bail-In is under consideration of non-insured deposits in the troubled Cyprus banks. The European Central Bank (ECB) is currently offering an insurance up to €100,000 per client.

Opportunities

Discover how CEOs are navigating through the climate of uncertainty to find growth, and which markets – old and new - they’re targeting.

Central Bank searches for Troika approval to inform Cypriot banks on their needs.

The Central Bank has asked the International Lenders for approval to officially inform banks about their recapitalization needs, in a suitable way to enable the banks to accurately announce to investors, their financial results for 2012.

The deadline for publishing the first results is February 28^th. The principal entities, Bank of Cyprus and the Popular Bank argued that they are unable to present results on this cut-off date as they have not yet been informed about how much recapitalization they will require. Announcing the results without this information might be misleading to investors. Both banks have asked the Stock Exchange authorities for an extension.

However to give them an extension on the date is prohibited by law governing transparency and market manipulation. In addition Investment Managers Pimco have been hired to carry out due diligence of the Cypriot banks to establish their capital needs ahead of an overall bailout package sought by Cyprus.

The final findings of the due diligence will only be made public if the new president of Cyprus, to be decided next Sunday, signs off the final loan agreement.

Limassol Business Network meeting

DON'T LOSE THE CHANCE TO GET REFERRALS!

Place: Chambers of Commerce - http://goo.gl/maps/6BbB1
Time: Thusday 20th of February 2013 at 18:00
Find out more: http://www.facebook.com/events/598060700220761/

No news conference but Christofias will address nation

Cyprus Mail February 2013

PRESIDENT DEMETRIS Christofias will address the nation tomorrow night, providing an overview of the achievements of his government in the last five years. 

Christofias had originally planned to hold a press conference today at midday. The presidential palace sent out invites last week to journalists to attend the live event scheduled for today. 

However, the palace press office informed news outlets yesterday morning that the press conference, where Christofias would have accepted questions from journalists present, had been cancelled. No reason was given for the cancellation. 

Instead, he will read out a 20-minute recorded address to the state which will be aired tonight after the evening news on the state broadcaster CyBC. Journalists will not be present to pose questions on his government’s achievements during the last five years.  

Asked why the address had been moved to Friday evening, a government source said it had something to do with the availability of CyBC camera crews. 

Christofias’ address to the nation will likely be the last before this Sunday’s presidential elections. Under Cyprus’ electoral laws, election campaigns have to wrap up from midnight tomorrow, with no electioneering allowed 24 hours before the elections.

Cyprus bailout must be linked to anti-money laundering monitoring

A financial rescue package for Cyprus must be linked to close and continuous monitoring of its progress in implementing anti-money laundering policies, the European Central Bank Chief Mario Draghi said yesterday.

Mario Draghi informed European lawmakers that the crucial part was implementing all relevant laws and not just putting them on the books. A final deal should provide for “close monitoring” of anti-money laundering mechanisms on the island, he said. He also added that it was imperative for the next Cyprus Government to emerge from elections to commit to a financial assistance programme.

“It is very important that a programme be agreed," Draghi told the European Parliament's Committee on Economic and Monetary Affairs. “We have to make sure we don't create financial instability.”

A spokesman for the German finance ministry considers March 2013 to be the earliest date at which possible aid for Cyprus would be discussed at the Eurogroup.

“It now depends on how quickly Cyprus will be in a position for talks,” spokesman Martin Kotthaus said at a press briefing in Berlin. “The topic will be on the table of the March Eurogroup at the earliest,” he said.

International Risk Review

Eltoma would like to draw your attention to potential business risks associated with trading in overseas countries. The headlines below highlight some of the recent changes that have impacted the risk environment.

AFRICA

Kenya – The March election will determine trends in political and economic risk.

Tunisia – Tunisia's country risk rating is downgraded on account of dramatic political developments.

MIDDLE EAST

Israel – A more centrist government faces major political and economic challenges.

Yemen – A government offensive fails to dislodge Al Qaeda-affiliated militants.

WESTERN EUROPE

France – France's country risk rating is downgraded as the government looks unlikely to achieve its targets.

Turkey – Turkey's country risk rating is upgraded after negotiations between the government and Kurdish separatists.

EASTERN EUROPE

Lithuania – Improved exports drive economic expansion.

Slovenia – The fracturing coalition poses a risk to key economic reforms.

ASIA PACIFIC

Cambodia – The key garments and tourism sectors face good prospects in 2013.

Thailand – Domestic demand remains robust but currency appreciation worries policymakers.

AMERICAS

Dominican Republic – Political risks increase as the government reviews the terms of a major mining concession.

Jamaica – The risk profile remains under pressure amid serious economic concerns.

All eyes on Cyprus: Cyprus is making a difficult choice for the future

The Sunday president election has failed to produce a clear winner. The right-wing candidate Mr Anastasiades has emerged as the winner but failed to secure a victory in the first round. He will now face Mr Malas who is supported by the outgoing president. It is widely anticipated that Mr Anastasiades will emerge as the next president of Cyprus. Mr Anastasiades has support from the German Chancellor Angela Merkel who came to Mr Anastasiades’s party conference held in Cyprus several weeks ago.

The biggest challenge for the new president will be the securing of Troika’s bailout. The outgoing Cyprus government applied for this approximately  8 months ago but has so far failed to secure it. The previous Communist led government has deliberately delayed negotiation with the Troika which had substantially weakened the negotiation position of Cyprus. The Communist led government has refused to discuss privatisation of semi-government organisations like CYTA, (a telecommunications company) or EAC (a power supply company). The delays in negotiation have given a chance for some European parliamentarians to bring up their concerns of Cyprus having close ties with Russia.

The Cyprus economy relies on the property market, service and financial industry and tourism. Currently the property market is down with no sign of recovery. It is interesting that about 70% of Cyprus property have no title deeds. This is detrimental for the chance of the property markets recovering as overseas property buyers are very concerned about having no title deeds for a property they purchase. The service and financial industry is also under attack for allegations of loose anti-money laundering procedures. The Russian market is a major market for Cyprus banks and service providers. Tourism was especially heavily hit by the decreasing number of British holidaymakers. Many tourists are commenting that Cyprus is overpriced and there is not much to do.

Meanwhile, Troika experts have been asked to calculate the risk of a Cyprus default and its impact on other Eurozone countries. According to the report, the most affected EU country will be Greece as Cyprus based branches of Greek banks are holding about 10% of Greek savings. Ollie Rehn has called Russia to step in and help Cyprus.

Why a 'small' bailout for little Cyprus is a big deal

Matthew MelchiorreFebruary 6, 2013 06:20

The bailout of Cyprus is garnering much less attention than did the help provided to other struggling euro zone members.

Cyprus is tiny, and rescue or no rescue, the euro will remain largely unaffected. Or so the argument goes. While those who scoff that Cyprus’ request for €17 billion ($23 billion) is chump change compared to the Greek and Spanish bailouts and the hordes of bailout-ready cash stashed at the European Stability Mechanism (ESM), they are wrong to ignore the power of the precedent that Cyprus presents to the euro zone.

We’ve heard the “small” argument before. Before the Greek bailout gathered momentum in 2010, pundits, economists and politicians claimed that Greece posed no threat to the stability of the euro because it accounted for only 3 percent of the euro zone economy. So what changed their minds to grant Greece its 2010 bailout and two others since then?

Greece didn’t get any bigger relative to the rest of Europe. In fact, it now represents 2.5 percent of total euro zone GDP. Instead, the “small” argument quickly lost merit in explaining the significance of the Greek crisis. Events don’t occur in a vacuum. And it was that realization that changed their minds.

The worry was that if Europe were to have let Greece go, the effects would have caused a much larger problem for the stability of the common currency.

Europe’s economic woes are not isolated to Greece and the euro zone’s creditors know this. That’s why Spain and Italy have had several uncomfortable run-ins with high bond yields, and now France is coming into the crosshairs of the international financial community as its lack of competitiveness — and the lack of political will to do much about it — has sparked rumors of another credit downgrade.

Greece set an important precedent for creditor security, as letting it default would have led investors to question the security on their investments in other euro zone countries with deeply rooted economic problems. If the European Union wouldn’t rescue Greece, then who would it rescue?

The disaster scenario was that market uncertainty from bank runs in Greece would have caused bank runs in Spain, Portugal and Italy, which combined represented roughly 34.5 percent of the euro zone’s economy. Add in banking system exposure from other European countries and Europe would have had a full-scale crisis on its hands.

Bailout or no bailout, Greece was a big deal and Cyprus is no different. If the EU decides to throw some cash Cyprus' way, conditional upon the right reforms, it would reinforce the precedent set with Greece. If, on the other hand, Cyprus gets no help, the precedent that the Eurocrats worked so hard to set with three painstakingly negotiated Greek bailout packages would fall into question.

Despite Cyprus and Greece being the same in precedent, the fundamental problem facing Cyprus is actually very different from that of Greece. The little island’s woes stem from an over indebted banking system — with the third-highest level of private debt as a percentage of GDP in Europe — while Greek insolvency came about from a lack of competitiveness papered over with heavy government borrowing (ironically, Cyprus was one of the main creditors).

Unlike Greece, government debt is not at the root of Cyprus’s problems. Public debt-to-GDP is below both the euro zone and European averages by 16 and 11 percentage points, respectively.

The experience of Ireland — the country with the second-highest private debt-to-GDP ratio in Europe— offers guidance of what Cyprus ought not to do.

In 2008, as soon as the financial crisis exposed the poor quality of Irish banks’ property investments and confidence in Ireland’s banking system crumbled, the government guaranteed private bank obligations and requested European bailout funding (initially committing to not impose haircuts, but reneging on that commitment in 2011).

Ireland’s pre-crisis public debt-to-GDP ratio of 25 percent quickly grew to 65 percent in 2009 and then to over 100 percent in 2011. As a result, the Irish have been struggling to bring this figure back down for several years in compliance with tough austerity measures. A far better solution would have been to wind down failing banks (instead of propping them up) and impose haircuts early on.

At the end of the day, the EU will grant Cyprus its money. Risking the stability of the entire currency bloc just isn’t worth saving a few billion euros.

But Europe should think twice before simply handing out a bailout package equal to the entire Cypriot economy.

As Ireland’s current plight shows, burdening the taxpayers to save the banks and bondholders imposes unnecessary and long-lasting pain. Once the European Union provides the stabilization funding needed to prevent Cypriot contagion to the rest of the euro zone, the EU ought to set a new precedent going forward: that inefficiency has the freedom to fail.

Cyprus elections: pro-bailout candidate takes 45.4% of vote

Conservative Nicos Anastasiades will face leftwing independent in runoff after failing to secure enough support for outright win

• Helena Smith in Nicosia
• The Guardian, Sunday 17 February 2013 19.01 GMT

Their country's future as a eurozone member hanging in the balance, Cypriots voted on Sunday to elect a new president, with the pro-bailout conservative leader, Nicos Anastasiades, securing the biggest backing with 45.4% of the vote.

Anastasiades is set to face a runoff next week after failing to gain enough support for an outright win. However, he is seen as the overwhelming favourite in that contest, against the communist-backed independent, Stavros Malas, who took 26.9% of the vote.

The vote for Anastasiades and his DISY party is an endorsement of the pro-bailout policies advocated by a man who will face the arduous task of finalising a €17bn (£14.6bn) rescue package with the European Union and the International Monetary Fund to keep the country's economy afloat. Last year Cyprus became the fifth eurozone state to ask for a bailout.

On Sunday 545,000 citizens filed into polling stations to cast ballots in what was seen as the country's most crucial election in recent times.

"Whoever wins will preside over five very difficult years, first negotiating a rescue programme then possibly having to enforce new austerity measures," said Hubert Faustmann, associate professor of history and political science at the University of Nicosia.

No Cypriot election had been as closely watched by the international community. The divided island's economic difficulties – triggered by losses its banking system suffered when Greece restructured its debt – have spurred concerns of a re-eruption of the eurozone crisis just when many had hoped progress in the bloc's fragile periphery had been achieved.

Brussels had not hidden its hope that Anastasiades would win. An advocate of neo-liberal policies who believes in breaking the power of trade unions, the 66-year-old lawyer has promised to reach a speedy agreement with would-be creditors at the EU, the IMF and the European Central Bank.

"Above all else, we must unite forces to counter this economic crisis which unfortunately our homeland has never experienced before," he said after casting his ballot.

The outgoing president, Demetris Christofias, a veteran communist, had balked at the idea of meeting the tough terms foreign lenders had attached to a bailout, including calls to privatise state assets.

Amid fears of Nicosia's debt load becoming unsustainable – the rescue terms would likely push Cypriot debt to as much as 145% of its GDP – Cyprus has faced increased pressure to accept aid from Russia. On the eve of the election Moscow's finance minister, Anton Siluanov, signalled that Russia would prolong the repayment period of a €2.5bn loan made to Cyprus in 2011.

The move was welcomed by the EU commissioner Olli Rehn, who emphasised Moscow's "close economic and financial ties with Cyprus". Russians lured by low taxes keep about €20bn in bank deposits in Cyprus. "It would certainly be helpful if Russia is able and willing to provide a financial contribution," Rehn said at the weekend.

The Mediterranean island has enough funds to get by until April after streamlining the economy and announcing pay, pension and benefit cuts worth about €1bn last year.

Double tax deal

NICOSIA Cyprus and Spain signed Thursday a double-taxation treaty between the two countries.

The agreement was signed tonight during a ceremony at the residence of Spain’s Ambassador in Nicosia, Ana Salomon Perez who, said that after eight years of negotiations “we are finally going to sign a double taxation agreement between Cyprus and Spain”.

"Here we are signing this important agreement which will certainly facilitate investments from Spain to Cyprus and from Cyprus to Spain and strengthen economic relations between our two countries", she noted.

She expressed hope that the business communities of both countries will take advantage of the opportunities that this agreement will provide.

The Spanish Ambassador said "the Spanish authorities showed a considerable amount of flexibility in order to reach an agreement", expressing the gratitude of the Spanish government particularly of the Minister of Finance and the Minister of Foreign Affairs who made major efforts to complete all necessary domestic procedures so that the signatures could take place before the term in office of Minister of Finance Vassos Sharly and the current government came to an end.

Finance Minister Sharly said that "the set has been set" and "what you need is a commitment that you believe in what you are doing and everything else falls into place".

He said that double tax agreements do not progress simply because you have commitment but you need a partner and in this context "we had a very good partner to work with".

"We did it and we are doing a lot but we need friends and in Spain we have a very good friends which we always believe in and I hope that this relationship will develops from a double tax agreement at the moment to become a great strength in the relationship between us", he noted.

Minister Sharly also referred to the agreement of an MOU with Troika. "My greatest satisfaction in this respect is not so much that we managed to agree an MOU with Troika it was to agree an MOU with the Cyprus politicians and to get them to Parliament and on every occasion to see that they will all say `yes`. Hardly anybody ever said `no`. And I think being a Cypriot, my pride is that we have achieved all of us a kind of a unanimous approach towards resolution of a problem and again this comes from a commitment", he concluded.

Back to USSR: Russia is imposing stricter control over foreign accounts of its nationals

The Russian authorities has announced that starting from February 13^th, 2013, all Russian tax residents receiving remuneration from outside of Russia for profit generated in Russia must first bring it into Russia by sending monies to a Russian based bank account. It is understandable that the Russian authorities are trying to collect much needed cash from undeclared income relating to business transactions that have occurred in Russian. One such example of undeclared profit could be dividend income received by a Russian tax resident from a Cyprus company to a his or her Cyprus bank account, where he or she is a shareholder, which is in turn a shareholder of a Russian company. In this scenario there is an abuse of a Double Tax Agreement under which a reduced withholding tax rate applies and keeping such dividend income undeclared back in Russia. However, it looks like nobody has properly thought about how it will work in practice and how the Russian authorities will receive this information about Russian tax residents’ overseas bank accounts. It is also looking like Russian banks have to report to the Russian tax authorities on movements on foreign currency accounts of its clients. Practicality of this is very doubtful if you consider that many Russians have foreign currency accounts for spending monies abroad on holidays and shopping.

Russians are well-known for wide scale and aggressive use of offshore companies for protecting confidentiality and reducing tax burden. There is a valid reason for this and instead of addressing the core root of the reasons behind this the Russian authorities have decided to fight what lies above. Penalties for non-compliance are severe – 75% of an amount not put through a Russian based bank account for a first offence and 100% of an amount for any following offences.

BNI EVENT LIMASSOL

Join us tomorrow in the BNI Event in Limassol.

Find below the event details.

Place: Lobby Restaurant opposite of Crowne Plaza Hotel
Time: 13:15
Organiser: BNI


For more information visit:  http://www.facebook.com/pages/BNI-Limassol/325188730928018?fref=ts


HOPE TO MEET YOU THERE TOMORROW!

Cyprus: from bad to worse

The situation in Cyprus is deteriorating as the outgoing government has failed to secure a bail-out from Troika. Instead, the EU officials are talking about bail-in where Cyprus bank deposit holders have to take so-called haircut. This will be the final blow to the Cyprus banking system.

As this news is in the air, panic might spread among people and companies may begin to pull money out of the Cyprus banking system.

Some of German officials are saying that Cyprus has no structural importance for Eurozone and the country could default. Some are voicing that a cap to be put on how much of help any EU bank can get from the EU.

However, ECB is firm in its position to help Cyprus and avoid any default in the Eurozone.

Cyprus needs about €17bn of which €10bn is required in order to re-capitalise Cyprus banks due to the fact they took a painful haircut on the Greek bonds. Another €7bn is required for the Cyprus government.

Everybody expects that terms and conditions are to be agreed on Cyprus bail-out or bail-in by the end of March. Cyprus is having a vital presidential election this month where a right-wind candidate is widely expected to win a post. 

Unexpected move from Russia to fight “offshore companies”

The Russian president Vladimir Putin confirmed the start of a new campaign fighting “offshore companies” on order to eradicate them from the Russian economy. Vladimir Putin informed the press that two approaches were being considered – imposition of restrictions and penalties and creating a more business friendly environment. The Russian government has decided to adopt the second approach which is very unusual to the previous practice which was based on overregulation, restrictions and penalties. According to the Ministry of Finance of Russia about US$65bn left Russia in 2012. The reasons for Russian capital escaping the Russian economy are bureaucracy, a high level of corruption, lack of assets protection by a Russian law, excessive tax burden, etc. For example, one way that a business can be “expropriated” is to start a criminal prosecution and claim that assets were acquired through criminal actions and to promptly sell them in an “auction”.

Russian businessmen are actively using offshore companies to hide their identity and to avoid paying Russian taxes. Cyprus is still most popular destination for Russian businessmen to setup an offshore company. But there is a trend towards Singapore where offshore companies are used more and more for holding Russian assets and tax planning by Russian businessmen.

The Russian economy is classified as a state capitalist economy where there is a strong influence of state controlled enterprises. The Russian officials are looking at Chinese and Singaporean economic models which both being successful in their own way. In fact, this is not first time when Russian government is trying to address the issue of escaping capital however little progress has been made so far.

Germany and ECB clash over Cyprus

The European Central Bank is currently at odds over with the German Finance Minister, Wolfgang Schaeuble, over the consequences of not bailing Cyprus out and what this would mean for the Eurozone as a whole. Negotiations on a 17.5 billion euro rescue package for Cyprus which began in November 2011 are currently being discussed and it is hoped that a bailout will be agreed upon by March at the very latest however Germany is reluctant to agree anything at the moment.

Only last week Schaeuble claimed that Cyprus was not “relevant” to the survival of the Eurozone however the ECB has refuted this statement and said that this was a matter for the ECB to decide and not Germany. They fear that a Cypriot bankruptcy would destroy the recent market calm about the Eurozone.

Discussions will continue pending a report by the troika of EU commission officials, ECB and the International Monetary Fund. Meanwhile Cypriot officials claim that Germany is stalling the islands bailout by accusing Cyprus of money laundering. A leaked report by German Foreign Intelligence pointed to the fact that Russian and Ukrainian oligarchs are laundering money in Cyprus, an accusation that Cyprus strongly denies however Germany is not convinced.

Cyprus replied to the accusations by stating “It is obvious that behind the attacks on  Cyprus there are vested interests. Those who attack Cyprus want to take its role as a serious financial and investment centre”

It remains to be seen how this matter will be resolved.  

Interesting event in Dubai

 “Legal USE of offshore company” by Adam Consulting

Their personalized business set-up solutions include:

• Limited Liability Company (LLC) incorporation
• Professional License 
• Free Zone Company incorporation in UAE
• Offshore Company incorporation





We would like to invite you all, for their incoming event about “Legal USE of offshore company”. We are very glad to work with Adam Consulting as partners and we wish them the best of luck in their upcoming seminar. We are sure it will be useful practical seminar and a business success!

Event Details

Topic : Legal Use of Offshore Companies
Speakers : Mr. Shanavas, Mr. Mohsin & Mr. Rizwan
Venue : Media One Hotel, Dubai, UAE
Time : 7PM – 8PM

Prosperous Chinese New Year!

The team of Eltoma Corporate Services wishes all our clients and partners a prosperous Chinese New Year! 

Please note that the offices of Eltoma in Singapore and Hong Kong will be closed for the public holidays on the following days:

Mon February 11 and Tue February 12, 2013 (the office will be reopen on Wed February 13, 2013 in Singapore and on Thu February 14, 2013 in Hong Kong).

Bad news for foreign office workers looking for employment in Singapore

A number of Singaporean MP’s are suggesting that foreign office workers have to be replaced with the local workforce as their education level and experience gained increases. These MPs want to give priority for locals ahead of any foreigners. A minority are suggesting introducing a “Certificate of Eligibility” for businesses to qualify before being able to hire foreigners. These steps are heading towards Singapore closing the market for foreign office workers and raise questions for international businesses about operating in Singapore.

The number of work permits issued by the Singapore Immigration Authorities are falling due to measures taken in previous years. Among those measures are higher qualified salaries and professional qualification. On the other hand, Singapore is getting more expensive and the cost of living is rising. According to recent ranking Singapore is considered as 6^th  most expensive city in the world to live in. Other cities in Asia are becoming more attractive for foreign nationals who do not Singapore as the first choice in this region.

If we take for example Carrefour, a French supermarket chain, which has successfully expanded to many parts of the world. Carrefour has recently closed its department store in Singapore. There have been some comments from Singaporeans that they are frustrated that Carrefour have brought French nationals to Singapore to manage the business. This however is standard practice in many multinational companies in order to apply a successful business model that has proved successful elsewhere. It always takes time to train a local staff and foster among then a business culture that a multinational company wants to project. Introducing restrictions on foreign workforce will open new opportunities for local graduates and professional but will close some other opportunities such as learning new cultures and new ways to conduct business, etc. 

Cyprus in crisis: what lies ahead?

Interesting comments were made by some of German leading politicians regarding Cyprus bailout. They have stated that they do not rule out a Cyprus default. They have stated that the Cyprus economy is small and the Cyprus default would not be considered as a systematic failure for EU. However, the European Central Bank has signalled an opposite opinion saying that a failure of any Eurozone member would have a negative impact on the whole Eurozone.

Some people commented that the Cyprus government should reject a Greek bond haircut as it has immediately sent the Cyprus economy into trouble. The amount that was written off was too big for the size of the Cyprus economy. Another point to mention is delay and indecisiveness of the Cyprus government. When the Cyprus government had applied for a bailout, it must be quick to negotiate terms and conditions with Troika promptly. The government had to be prepared to sacrifice something in exchange of a quick fix. The Cyprus government was very proud of itself defending semi-government organisation like CYTA, a telecom company, or EAC, power supply company. Privatisation could be very good for the economy as it would help to eliminate inefficiency and ineffectiveness in both companies. As time passed Troika has started to look deeper in the Cyprus problems. The corporate and financial services industry has come under attack for loose anti-money laundering procedures, for Cyprus being a tax oasis due to its low corporate tax rate of 10% and for being a banking haven for Russian oligarchs and businessmen.