Interpreting Middle East Economic News and Analyzing Market Trends

Category: Bail-outs & Bail-ins

Cyprus Update: Capital controls still in place, economy sinking with no end in sight

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It’s been one month since Cyprus reached a deal with the EU, ECB and IMF (collectively known as the Troika).  The bail out was supposed to save the country from a collapse of its financial system and help build up the economy again.  Instead, the bailout/bail-in is a disaster and the country is nearly forgotten as the Troika moves on to prepare for the next bailout victim.

 

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Bailouts of bad debts do more harm than good

Kuwait’s dysfunctional parliament recently approved bailouts of bad consumer loans dating back as early as 2002.  The UAE and Saudi Arabia have both came up with similar solutions to bailout their citizens of their piles of bad debts, but is this good?  Who really benefits from bailouts and what is likely to happen down the road?  We’ve reported on this topic several times over the past few months, here, here, here and here.  Now it seems that a major ratings agency has come out against these bailouts due to their longer term effects on the economy.

 

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Qatar backtracks on aid to Egypt, Libya joins in and gives Egypt $2 billion interest-free loan

Qatar has had a change of heart on giving more aid to Egypt.  Last month, Qatar announced that it was not going to give Egypt additional aid after pumping $5 billion into the country.  See our earlier post on this here.  Libya also joined in and is giving Egypt a $2 billion interest-free loan, which would have been unheard of before the Arab Spring.  Here’s the story from Reuters:

 

Arab allies Qatar and Libya gave cash-strapped Egypt a $5 billion double boost on Wednesday as the Arab world’s most populous nation struggles to secure an IMF loan to ease its deepening economic crisis.

Qatari Prime Minister Sheikh Hamad bin Jassim al-Thani said after talks with Egyptian Prime Minister Hisham Kandil that Qatar would provide an extra $3 billion on top of some $5 billion the Gulf state has already given Cairo, and would extend gas supplies to Egypt this summer as needed.

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Kuwait approves debt relief for a select few

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The parliamentary debate, which has been going on for months, finally came to an end yesterday with a vote of 50 in favor and 4 against.  The bill calls for the government to buy personal loans of some citizens, write-off interest and reschedule payments.  The total expected cost is $2.6 billion.

 

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The Cypriot euro launched today

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Heavily-guarded trucks loaded with euros headed to the Central Bank of Cyprus

Banks in Cyprus will open today at noon for the first time in nearly two weeks.  The terms of the bail-in by the Trioka were only finalized on Monday, which called for a ‘levy’ on uninsured deposit (deposits over €100,000) of up to 40%.  Banks remained closed in the meantime until further clarification and to give the government time to put in place capital controls, in effect creating a new currency, the Cypriot euro.  Here’s more from The Wall Street Journal:

 

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