Russia may not restructure Cyprus loan due to deposit tax, says ex-finance minister Kudrin

A European Union-imposed levy on Cyprus bank deposits would risk a restructuring of a 2.5 billion-euro ($3.2 billion) Russian loan to the Mediterranean island, said former Finance Minister Alexei Kudrin.

“The EU should look for a solution with Russia through joint negotiations and not unilaterally,” Kudrin told reporters in Moscow. “If it’s done unilaterally, then Russia will be less accommodating about the conditions of the restructuring.”

While partial losses for depositors are inevitable, the Cypriot authorities should negotiate a deal with account holders, he said today.

A double-tax avoidance treaty and low tax rates have made Cyprus the conduit of choice for Russians moving money into and out of their country. Including bank deposits and loans to companies registered in Cyprus, Russia’s exposure is about $60 billion, Moody’s Investors Services estimates.

Russia may reconsider its role in the Cyprus bailout because it wasn’t consulted about the bank tax, Finance Minister Anton Siluanov, who succeeded Kudrin at the post, said yesterday, according to state news service RIA Novosti. He said last month that Russia was willing to restructure the 2.5 billion-euro loan it provided in 2011 and possibly agree to a lower interest rate.

Cypriot President Nicos Anastasiades is trying to persuade lawmakers to back the plan to impose losses on the nation’s depositors as part of a 10 billion-euro rescue aimed at preventing a financial collapse and a possible departure from the euro area.

Cyprus could meet its target of generating 5.8 billion euros by imposing a 15.6 percent levy on bank deposits of more than 100,000 euros and no levy on deposits below that amount, an EU official said on condition of anonymity.

The levy, part of the 10 billion-euro rescue package, initially called for a tax of 6.75 percent of all deposits up to 100,000 euros and 9.9 percent above that.

“I think the tax decision won’t be approved,” Kudrin said. “The government coalition is collapsing because it’s not prepared to vote for this decision.”


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