The Cypriot economy might be affected to a certain extent from the world financial crisis, Finance Minister Charilaos Stavrakis has said, adding that at this stage there is no cause for concern.
Speaking to the press after a lecture at Cyprus International Institute of Management on ''The international financial crisis and its possible effects on the Cypriot economy'', Stavrakis said that the Cypriot banking system remains sound and robust because investments made in US high-risk investment products were limited.
“Local banks and insurance companies have been rather conservative, clever and lucky, in that they were exposed to the minimum in investments in high risk US companies,” he said, adding however that the Finance Ministry monitors closely the situation with the aim to safeguard the economy.
He said it was difficult to assess the immediate fallout from this international crisis, but noted that there is increased inflation which is mainly due to external factors.
“Losses incurred from investment in products of US bank are minimal and the rate of economic development is in a very good condition. But we must not be complacent, we must be vigilant and monitor developments to ensure our economy remains sound,” he added.
Replying to questions, Stavrakis voiced concern about Cyprus’ ''overdependency'' on Russia, which is currently facing a financial crisis.
''Russians are, to a large extent, holding the Cypriot economy. The rate of investment from Russia continues to be satisfactory but we have to provide for other options too and this is why we are trying to make some openings in big countries such as China, India and the Ukraine,” Stavrakis said.
In his lecture, Stavrakis said that it is difficult to calculate the direct repercussions on the Cypriot economy from the international financial crisis due to the limited amount invested by Cypriot banks in high-risk investment products in the US, which amounted to 15 million euro in the US bankrupt Lehman Brothers investment bank.
He added that the fallout on Cyprus will depend on what happens to the economies of the EU and Russia.
''These economies are expected to show a slowdown in the rate of growth, something which will possibly affect Cyprus' tourism, investments, and possibly the construction and real estate sectors,'' he said.
Stavrakis said the local economy has to meet challenges such as rising inflation, competitive pressures, deterioration of the balance of payments, high levels of borrowing for corporations and households, high consumption and the first signs of a slowdown in real estate and overdependency on the Russian market.
''It is very important to reduce inflation to the level of other EU countries,'' he added, noting that the construction sector constitutes an area of concern because ''real estate prices have more than doubled in the past five years and it has to make corrective moves.”
Former Finance Minister Mihalis Sarris said the effects of the international financial crisis on Cyprus are limited, calling for a close monitoring of future developments.
He added however that indirect repercussions will be more visible in 2009 and 2010. ''We have already seen significant increases in interest rates, and there will be repercussions in investments, consumption and public finances,'' he said.
Sarris referred also to the complex decision-making mechanism within the European Union, saying this would be a weakness if a European bank is faced with similar problems as the ones experiences by US banks.
