RUSSIANS FLOCK TO CYPRUS TO DRAW THEIR FUNDS OUT OF BANKS

photo: guardianuk

Russians have been flocking to Nicosia in an attempt at drawing their funds out of banks that are looking increasingly troubled.  The Cyprus government is still dithering on what to do after two separate measures failed in parliament.  

The new proposal, to use pension funds and other state asset to raise enough money to guarantee a 7 billion dollar bailout from the EU central bank to shore up two failing banks, is seen as both controversial and ineffective.

So the Russians keep coming to Nicosia, waiting for next Tuesday when banking should resume, although there are doubts about that too.  Russian investors, including the Russian government have been investing heavily in deposits at Cyprus banks due to the high interest yield they received for years.  The amounts of Russian foreign money held in Cyprus banks is estimated to be around 32 billion dollars.  Most of this money would have been subjected to the now infamous deposit tax that was initially proposed by the newly elected president of Cyprus.  

Most Russians in fact, do keep their money abroad, afraid of the corruption and graft in their own country.  Some of them keep it in foreign banks also for the reason that they are ill-gotten gains which they seek to keep away from the scrutiny of government entities at home. 

In fact, most Cypriot saw the measure to tax foreign deposits as a good alternative to solve their debt problems, but the tax instead was to be levied on all deposits.   Some newspapers have even suggested that the requirement of levying a tax on foreign deposits was a measure to try to make Russia's president Putin pay for the money he is secretly alleged to hold in Cyprus banks.

What Cypriots fear now, is that Russians will withdraw their funds en masse. If that occurs, Cyprus is pretty much doomed.   But Russian oligarchs are also in a bind.  They have already denied they hold any funds there, so their ability to come and withdraw their funds would of course uncover the truth.  But Russians are also very heavily invested in Cyprus where they have bought an unusual amount of real estate and other holdings through the years, so that for most of them, a failure in Cyprus is not a good outcome either.  

Source; the GuardianUK 3.23.13