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Lagarde notes financing issues need to be resolved for debt to be sustainable

18 January, 2013

International Monetary Fund head Christine Lagarde has said that the bailout package between Cyprus and the international lenders has not been completed yet because there are clearly financing issues that need to be resolved in order for a program to be accepted and for the debt to be sustainable.

Lagarde was speaking during a press conference at the IMF headquarters in Washington where she referred to last year’s international economic developments.

Invited to comment on reports from Brussels and Nicosia that the Europeans do not want the IMF to participate in the programme and why two months after the statement issued in November there has not been a deal yet between the Troika and Cyprus, Lagarde said the IMF has been engaged with the Troika partners in relation to Cyprus.

She reminded that the IMF has “sent a mission on the ground and we had a dialogue with the Cyprus authorities”, adding that the “building blocks of a programme have been put together”.

Lagarde underlined that the programme “has not been concluded because there are clearly financing issues that need to be resolved in order for a program to be accepted and for the debt to be sustainable”.

Meanwhile, there is no indication so far that the due diligence review carried out by US-based investment management firm Pimco on the Cypriot financial system has been completed, even after today’s teleconferencing of the members of the Steering Committee (which comprises representatives of both the Cyprus authorities and its international lenders EC, ECB, IMF) and Pimco representatives.

According to CNA sources, the teleconference which will take place Friday evening to early hours Saturday, when Pimco’s deadline to hand over its final review, will be decisive about developments.

In the event there is no conclusion on negotiations and an agreement on the specific amount required for the banking sector’s recapitalization, the members of the Steering Committee will have to examine alternative solutions to keep the process going.

Pimco, appears to estimate the amount needed for the sector’s recapitalization around 9 billion euro and this is the extreme scenario, reliable sources have told CNA.

The bank’s recapitalization needs are of crucial importance to Cyprus, as they will determine the size of the bailout required. Cyprus applied for a bailout on June 25, 2012, after its two largest banks turned to the state for financial assistance, having sustained a severe hit due to their heavy exposure to Greek bonds.