One analyst says Russia is likely to be pleased with a plan to levy up to 10 percent tax on deposits in Cyprus where a large number of rich Russians have placed their money as this will help the president's drive to repatriate the funds back home.
MOSCOW, RUSSIA (MARCH 17, 2013) (REUTERS) - About half of the Cyprus depositors are believed to be non-resident Russians and a levy of up to 10 percent on savings as a bailout repayment mechanism is likely to hurt says Russian analyst Nikolai Petrov, an economist at the geo-political Research Centre on Sunday (March 17).
But at the same time it will also likely please the Russian government trying to claw back capital parked abroad.
"The European Union's conditions are raising taxes on bank deposits, and it's understandable that this will more or less painfully hit Russian depositors, many of whom have a pretty big and serious lobbying resource in the Russian government," says Petrov.
Russian president Vladimir Putin said in his state of the nation address last year that he wanted to limit bureaucrats and politicians from owning foreign bank deposits and securities as part of what he called the "de-offshorization" of Russian business.
This is part of the government's plan to repatriate up to 1 trillion US dollars in capital held by companies and high ranking officials offshore.
"There is a certain positive element, from the point of view of the Russian government, in that the conditions for keeping money in Cyprus will become harsher and unprofitable, and this fits in with the idea of 'de-offshorization', which Putin has promoted for a pretty long time. And the conditions under which Russiawill give credit to Cyprus are, in fact, that Cyprus provides information about Russian accounts; accounts belonging to Russian citizens, which, again, the Kremlin really needs for the 'de-offshorization' plan. Apparently, the situation which the Cyprus authorities find themselves is such that they will agree to this condition, and will receive a loan from Russia," Petrov said.
Cyprus's parliament has postponed until Monday an emergency session to vote on the levy on bank deposits after signs that lawmakers might block the surprise move agreed in Brussels on Friday (March 15) to help fund the bailout and avert national bankruptcy.
It was a radical departure from previous aid packages. Euro zone finance ministers want Cyprus savers to forfeit up to 9.9 percent of their deposits in return for a 10 billion euro ($13 billion) bailout to the island, which has been financially crippled by its exposure to neighbouring Greece.
The decision, announced on Saturday morning (March 16), stunned Cypriots and caused a run on cashpoints, most of which were depleted within hours. Electronic transfers were stopped.
EU Economic and Monetary Affairs Commissioner Olli Rehn on Saturday said thatRussia's government was ready to ease the conditions of a 2.5 billion euro loan it made to Cyprus by extending the 5-year maturity beyond 2016 and by cutting the 4.5 percent interest.
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