Russia: Loan to Cyprus too risky for just one creditor

Russia has no plans to grant a 5 billion-euro loan requested by Cyprus because the risks are too great to be assumed by a single creditor, Deputy Finance Minister Sergei Storchak said on Monday.

“We have no specific plans or instructions to do so,” Storchak said in an interview in Moscow. “It’s obvious that no single creditor can work with Cyprus alone,” he said. “Anyone who steps up on an individual basis to finance that country’s government or to help recapitalize its banks would be taking an enormous risk.”

Cyprus, whose public debt is forecast to reach 89.7 percent of gross domestic product this year, in late June became the fourth euro-area nation to request a financial rescue since a 2010 bailout of Greece. In addition to seeking aid from its euro-zone partners and the International Monetary Fund, Cyprus asked Russia for a fresh loan after borrowing 2.5 billion euros last year.

A bailout deal with the euro area and IMF will be signed by February 12, said Thomas Wieser, who heads the group of officials that prepare meetings of euro area finance ministers.

Cyprus may need as much as 17.5 billion euros, almost the size of its economy, to pay its bills and recapitalize banks, Finance Minister Vassos Shiarly said on November 22.

Russia would consider giving financial assistance to Cyprus as a part of international rescue package after the euro area takes a unified stance on aiding the island, President Vladimir Putin said last week in Brussels.

“While we don’t exclude taking part, as the president said, we’re not major creditors,” said Storchak, who oversees Russia’s debt and international financial cooperation. If a group of lenders were formed to help Cyprus, it would be based on Cyprus’s membership in the European Union, he said.

Russia’s current loan to Cyprus, which matures in 2016, was intended to help communist Cypriot President Demetris Christofias stabilize his government’s finances. Cypriot lawmaker Stavros Evagorou said on October 13 that the government was seeking to extend the loan.

Bilateral financial lending to foreign states should be treated as a commercial transaction, where the creditor expects to be repaid, Storchak said. More often, countries seeking financial assistance are in need of grants, though politicians are reluctant to say so openly, he said.