NICOSIA, Cyprus (AP) — Cyprus has been granted an extra year — until 2017 — to achieve a targeted budget surplus of 4 percent as part of bailout negotiations with international lenders, the government spokesman said Monday.
The change is designed to prepare for what could be a deeper than expected economic slowdown as the Mediterranean country is forced to drastically shrink its banking and financial industry.
Under a preliminary agreement with Cyprus' euro area partners and the International Monetary Fund for billions in rescue money, Cyprus had until 2016 to generate the budget surplus target through spending cuts and tax hikes.
But that deal was based on an earlier forecast that the economy would shrink this year by 3.5 percent of gross domestic product.
A Cyprus government official who spoke on condition of anonymity because he's not authorized to discuss details of the negotiations said the economy is now projected to contract by some 9 percent of GDP.
For that reason, government spokesman Christos Stylianides said Monday that negotiators are now hoping to extend the deadline to achieve a 4 percent budget surplus even further, to 2018.
Cyprus agreed last week to make bank depositors with accounts over 100,000 euros ($129,000) contribute to the financial rescue in order to secure 10 billion euros ($12.9 billion) in loans. Cyprus needed to raise 6 billion euros ($7.4 billion) on its own in order to clinch the larger package, and banks remained shut for nearly two weeks until politicians hammered out a deal.
To prevent mass withdrawals when the banks reopened on March 28, Cypriot authorities imposed a raft of restrictions, including daily withdrawal limits of 300 euros ($384) for individuals and 5,000 euros ($6,426) for businesses. That amounted to the first so-called capital controls that any country has applied in the eurozone's 14-year history.
Under the terms of the bailout deal, the country' second largest bank, Laiki, is to be split up, with its nonperforming loans and toxic assets going into a "bad bank." The healthy side will be absorbed into the Bank of Cyprus.
Big Laiki depositors could lose as much as 80 percent of their money.
Bank of Cyprus savers will lose 37.5 percent and possibly 22.5 percent more, depending on what experts determine over the next 90 days is needed to prop up that bank's reserves. The remaining 40 percent of big deposits at the Bank of Cyprus will be "temporarily frozen for liquidity reasons," but continue to accrue existing levels of interest plus another 10 percent.
Cyprus has long attracted many large Russian depositors, but a senior Cabinet member in Moscow said Monday that his government won't protect individual Russian victims of the Cypriot economic crisis.
Regarding businesses, Stylianides said Monday that his government's negotiators will seek to soon give them access to the frozen 40 percent of their deposits in the Bank of Cyprus in order to get the country's moribund economy going again as soon as possible.
"What we're striving and hoping for is that as of tomorrow morning that 40 percent is freed up so that we can return to some semblance of normal business activity," Stylianides told reporters.
He said the details have to be hammered out by Thursday when the eurogroup officials meet to discuss the Cyprus deal.
Cypriot banks also will sell their foreign operations under the agreement.
For instance, the Bank of Cyprus in Romania said Monday it is immediately suspending operations at its 10 branches for a week until it's sold. Bank spokeswoman Liana Voinescu She said ATM machines will remain open, with customers able to withdraw a daily maximum of 4,000 lei (910 euros).
Meanwhile, thousands of people attended a charity concert in Nicosia on Monday designed to help the needy at a time of 15 percent unemployment. Some 50 Greek and Cypriot artists were to perform at the CYPRUS AID event at the moat beneath the medieval walls surrounding the old part of the capital.
There was no entrance fee for this outdoor concert, but spectators were expected to drop off non-perishable food items that will be distributed to the poor and unemployed.
"It's a very emotional day for everyone because we are all trying to give to people who need help," said CYPRUS AID volunteer Andriana, who only gave her first name. "We are doing this to help people and we want to send a message to people abroad that if we are united, we can make things happen."
AP reporters Alison Mutler in Bucharest, Vladimir Isachenkov in Moscow, and Dalton Bennett in Nicosia contributed to this story.