NICOSIA, Cyprus--Cyprus's economy might contract as much as 13%
this year, because of the austerity measures imposed and a
restructuring of the island's banking sector, a government
spokesman said Thursday.
"The recession may not be 8.7% in 2013--as is estimated--it may
reach 13%," Christos Stylianides told state television RIK.
On Wednesday, the International Monetary Fund said it had
reached a staff level, or initial, agreement with Cyprus to unlock
its portion--about 1 billion euros ($1.3 billion)--of a EUR10
billion bailout for the country, with formal approval expected
early May. A final deal needs the approval of other euro-zone
members, who are footing 90% of the rescue.
After two attempts at securing a bailout deal in March that
pushed Cyprus to the brink of exiting the euro, the country faces
major obstacles. To secure the aid, it agreed to wind down its
second-largest lender, Cyprus Popular Bank PCL (CPB.CP), and
radically restructure the largest, Bank of Cyprus PCL
(BOCY.CP).
During the often chaotic negotiations for the bailout, Cyprus
shuttered its banks for almost two weeks and became the first
euro-zone country to impose capital controls--moves that have dealt
a severe blow to the island's economy and its standing as an
offshore financial center.
But, the banking crisis is expected to push the Cypriot economy
into a tailspin and economists at first estimated a contraction
that could reach 9%.
The European Commission predicted before the island's financial
rescue that the economy would shrink 3.5% the current year.
Mr. Stylianides said that with implementation of the right
measures and investments, Cyprus could see an economic turnaround
in 2014.
"We can create the conditions to have growth more quickly than
the troika expects," he said.
He added that leaving the euro area isn't an option for Cyprus.
"It would be like jumping into the abyss," he said.
Write to Nektaria Stamouli at nektaria.stamouli@dowjones.com
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