Cyprus Puts Tight Controls on Money as Banks Prepare to Reopen

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A man sat in front of an automated teller machine outside the National Bank of Cyprus, which has been closed for two weeks, on Wednesday in Nicosia.

NICOSIA, Cyprus — Cyprus‘s government announced severe restrictions Wednesday on access to the country’s bank accounts, hoping to curb what is nonetheless likely to be a stampede to withdraw money when banks reopen on Thursday for the first time in nearly two weeks.

The measures, which are supposed to be in effect for only a week but could be extended, will bar electronic transfers of funds from Cyprus to other countries. And individuals will not be allowed to take more than 3,000 euros cash outside the country, well below the current restriction of 10,000 euros, or $13,000.

Credit and debit card charges will be capped at 5,000 euros per person per month. And checks cannot be cashed, although they can be deposited.

The Cypriot finance minister, Michalis Sarris, said Wednesday that a flood of withdrawals was bound to happen quickly, anyway, but that the restrictions would at least help stem a mass flight of deposits.

“Each day that banks remain closed creates more uncertainty and more difficulties for people, so we would like to do our utmost to make sure that this new goal that we have set will work,” he said.

Despite those strictures, Cypriot authorities are bracing for as much as 10 percent of the 64 billion euros in deposits in the country’s banks to be pulled out on Thursday.

And some experts predict a much bigger bank run whenever the controls are eventually lifted.

“If you don’t impose the controls, the money is going to fly,” said Mujtaba Rahman, a senior analyst at Eurasia Group. “But when you remove those controls, clearly the money is going to leave anyway. So they’re in a Catch-22.”

Adding to the tensions here, the chief executive of Bank of Cyprus, the nation’s largest bank, was fired Wednesday by the central bank. That move came in consultation with the international lenders who are finalizing the terms of a 10-billion-euro bailout of the heavily indebted country.

Meanwhile, President Nicos Anastasiades opened a criminal investigation into how the country’s banks had been brought to the brink of collapse. His aim, he said, was “to find and attribute responsibility wherever it belongs.”

Tension has intensified in Nicosia, the capital, in recent days as citizens, confronted with banks that have been closed since March 16, have grown impatient waiting for the bailout deal to be completed so they can get access to their money. Many are also angry at what they see as Mr. Anastasiades’s inept political handling of the situation.

Demonstrations that first attracted hundreds here last week have been swelling into increasingly agitated gatherings of thousands of people amid the dawning realization that their future under the terms of the bailout deal will become increasingly bleak.

At the same time, a blame game has escalated among the ruling class. Mr. Anastasiades has started making incendiary statements about the central bank president, Panicos O. Demetriades, hinting strongly that he wants to see Mr. Demetriades ousted. That, in turn, has raised concerns about the central bank’s independence.

“The knives are out,” said a person involved in the talks, who declined to speak publicly because the talks were private.

Under European Union treaties, restricting the free movement of capital is forbidden. Critics say that what is happening in Cyprus shows that E.U. rules will be flouted when the International Monetary Fund, the European Central Bank and E.U. leaders find it convenient to do so.

A person involved in forging the details of how capital controls will be implemented in Cyprus acknowledged Wednesday that such restrictions ideally would be avoided. But “if you did not have them, then probably 100 percent of deposits would fly out of the country,” the person said.

Nonresident depositors, including Russians and businesses with substantial amounts in Cypriot banks, are especially eager to get their money out, the person said.

http://www.nytimes.com/2013/03/28/business/global/tensions-escalate-in-cyprus-as-banks-prepare-to-reopen.html?partner=rss&emc=rss&_r=0