Wednesday, 27 March 2013

Cyprus Capital-Controls Q&A

Following the deal between Cyprus and its international creditors on a bailout, there are just as many questions as answers, particularly surrounding the imposition of capital controls. Here our reporters address some of the most pressing issues:

By Matina Stevis and Joe Parkinson
Q: What actions does Cyprus need to take to enforce the capital controls adopted with last week’s legislation?
A: The Cypriot parliament passed enabling legislation last week, giving the central-bank governor and the finance minister the power to take measures to stem capital outflows. The legislation is quite generic and allows the country’s top finance and monetary officials to impose measures ranging from daily ATM withdrawals to freezing domestic interbank lending, suspending direct-debit orders and converting checking accounts into time deposits. The law allows the finance minister or, when relevant, the central-bank governor, to “take whichever restrictive measure [they] consider necessary under the circumstances, for reasons of public order and/or public security.” A decree enacting this bill and laying out the specific details of the capital controls is yet to be issued.
Q: What capital controls are already being enforced (e.g. border checks, ATM limits)
A: Customs officials said border guards at the counrtry’s air and sea ports have been instructed to check baggage and monitor whether travelers are taking more than €10,000 (about $13,000) out of the country. Any amount above that €10,000 threshold can be confiscated. Daily ATM limits vary: at Popular Bank of Cyprus (Laiki), cash-machine withdrawals have been capped at €100 euros; at Bank of Cyprus, the limit is €120. Other ATMs are operating normally.
Q: Can people bypass controls and ATM withdrawal limits by crossing over to Northern Cyprus?
A: At present, border guards at the main pedestrian crossing point on Ledra Street aren’t searching people unless they have intelligence indicating that someone is carrying a large amount of cash. That could change.
Q: How are the ATM limits and bank closures affecting businesses, such as hotels?
A: Many businesses are struggling to understand how the capital-control measures will affect their day-to-day operations, such as their access to cash, meeting payroll and other obligations, as well as the longer-term impact of the financial crisis on their businesses. “In two-three days we need to pay our employees. Will we be able to do that? What happens with the workers who get paid via Laiki?” asks Michalis Pilikos, the president OEB, Cyprus’s national business association. “For many this will be a major wound, we’ll see immediate mass layoffs and closures.” In the meantime, many small businesses are refusing to accept credit-card transactions of electronic transfers out of uncertainty over when banks will reopen and concern they may not be able to recoup the funds. Some larger businesses, like Nicosia’s Hilton Hotel, still accept credit cards but not bank transfers.
Q: When are banks likely to reopen? What will happen when banks reopen? Will even small depositors have access to their deposits?
A: On Monday, March 25, banks were officially closed for a national holiday in commemoration of Greece’s Independence Day. They have been closed since March 16. The Cyprus Central Bank said that all banks, including Bank of Cyprus and Cyprus Popular Bank, will reopen on Thursday at 8:00 a.m. Officials are expected to have the capital-control measures in place before then.

Related:   Cyprus crisis: What are capital controls and why does it need them?

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