Cyprus Reacts to IMF Report on Economic Stability

Lisa Ugur, Tax-news.com, London

08 June 2000

Last month's interim report by the IMF which rapped the Cypriot government over deficit and inflation and urged Cyprus to restore economic stability by increasing revenue through indirect taxes has met with much anger on the island. Diko's parliamentary spokesman Tassos Papadopoulos is the latest figure to lash out at the IMF, saying its warnings about the economy could ruin the country's reputation and calling on the government to lodge an official protest against them.

The IMF report stated that 'Cyprus, which was once well ahead of other EU candidate countries, has now lost its economic advantage and risks falling behind.

This is especially worrying since the economy has always been Cyprus' strong card in its bid for membership'.

Papadopoulos told the House Finance Committee the IMF wanted the Cyprus economy to align with the EU's tax system, but questioned that the EU even has a cohesive system as such, saying 'EU counties do not have a common tax policy. There are many differences between countries' policies regarding taxation.'

Papadopoulous added 'As regards to the worryingly high figures of the fiscal and public deficits, the inflation and the external current account deficit, there is nothing new in the report. The Finance minister as well as other Cypriot economists and members of this committee made note of all these problems before and analysed them thoroughly, as well as discussed other points mentioned in the IMF report, i.e. the need to liberalise the financial system and external capital flows.'

Papadopoulos is keen not to let the matter rest and has urged the government to complain to the IMF about its report, the crux of which was that the Cyprus economy was falling behind that of other EU candidates, saying 'the government should not sit back and accept this defamation of the country's economy. It could harm the country. The report is full of generalisations and has been repeating the organisation's views on our economy since 1990. The government should send the IMF a letter of complaint.' Papadoulous also questions the level of influence the IMF should have in Cyprus due to the fact that it is not dependent on the IMF like other countries that have a heavy debt burden'.

Papadopoulos' opinions, however, are not universally shared and whilst Disy's Prodromos Prodromou agreed that the IMF's remarks could be damaging for Cyprus, he sees the solution as being to address the issues raised, saying 'The IMF is internationally recognised as a serious and prestigious organisation, and has generated a philosophy which paves the way ahead for many universities and other global organisations and banks. Therefore, we cannot ignore its findings.' He added that foreign investors could be put off by the report so Cyprus needed to take measures to tackle any problems.

Finance Minister Takis Klerides has also joined the debate and he too is not unduly concerned by the IMF report but agrees that the findings must be taken into consideration. Confirming the Cyprus government had put forward some suggestions outlined in a three-year plan to bring the economy back on track, he has included a lot of the IMF recommendations, including those on taxation and cutting down the fiscal deficit.

Cyprus is keen to put across a good impression, for obvious reasons. As Mr Klerides summed it up, 'a not so positive image of the Cyprus economy projected by IMF and other organisations' reports, such as Moody, would cause foreign organisations lending money to Cyprus to charge higher interest rates.' The question of EU membership must surely also weigh heavily on the minds of the politicians as they work to restore any damage which may have been caused by the IMF revelations.

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