The European Stability Mechanism (ESM), the Eurozone lender based in Luxembourg, has disbursed €1.5 bln to Cyprus for the recapitalisation of the cooperative banking sector as part of the €10 bln bailout for the Cyprus economy.
The amount was disbursed in a cashless operation involving one series of 18-month ESM floating rate notes (FRN). The loan will be repaid in two equal instalments of €750 mln, due in 2029 and 2030, respectively.
Cyprus has now received a total of €4.5 bln in ESM financial assistance out of a total committed amount of €9 bln. The International Monetary Fund (IMF) is expected to contribute around €1 bln.
With a subscribed capital of €700 bln, of which €80 bln in paid-in capital and €620 bln in committed callable capital, the ESM’s maximum lending capacity is €500 bln.
On June 25, 2012 the previous communist-led administration submitted a request for stability support to the President of the Eurogroup. Following a period of extensive negotiations, the key elements for a “macroeconomic adjustment programme” (ie. harsh austerity measures, public sector reform and privatisations) were agreed by the Eurogroup on March 25, 2013. The programme addresses Cyprus’s financial sector imbalances including an appropriate downsizing of the country’s financial sector, fiscal consolidation, structural reforms and privatisation, the ESM said in an announcement.
On May 8, the ESM board approved the financial assistance facility agreement (FFA). According to the terms of the FFA, the first tranche of financial assistance was provided to Cyprus in two separate disbursements. The first cash disbursement of €2 bln was transferred on May 13 (maturity 26/06/2028), and the second of €1 bln on June 26 (maturity 13/05/2027).
The financial assistance facility is designed to cover Cyprus’s financing needs after the bail-in by unsecured deposits of over €100,000 for the rescue of the now-merged Bank of Cyprus and Laiki Popular Bank which has since been wound down. These needs include budgetary financing, the redemption of medium and long-term debt, and the recapitalisation of the two largest banks.
The memorandum of understanding (MoU) prepared by the Troika of international lenders (European Commission, ECB, IMF), and approved by the ESM Board of Governors on April 24, specifies the conditions to be met for the first and subsequent disbursements of ESM financial assistance, which include measures related to revenue, public expenditure, as well as pension and health care reform.
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