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What is holding back economic development

Posted by (Author) on January 2nd, 2017 - 24 Comments

Almost four years after the bail-in of March 2013 the fundamentals of the Cyprus Economy remain dire. Despite the completion of the Troika programme and the seemingly good economic indicators, including a growth in GDP of above 2% in the past year, the huge private debt (private debt to GDP was over 350% in mid-2016) remains stubbornly unchanged and affecting all attempts to rebuild the Economy. Moreover, the banking system remains bloated (more than three times the GDP) and rather unstable with about half of exposures still in non-performing loans. Not surprisingly, unemployment remains high (over 12%) and local demand is feeble and projected to remain so for the foreseeable future. Last but not least, the economic agents of the country (companies and households) are highly indebted with their balance sheets suffering from depleted equity and in grave need of repair. These conditions are not conducive for new capital investment which is badly needed, now more than ever.

Real and sustainable development will not come about before there is a solution to the ailing fundamentals in the economy. The dangers lurking if we fall into a beautification exercise and pretend that we have turned the corner are many. The prime and more immediate danger is to inadvertently create conditions where parasites will be slowly but surely be “killing the host” to coin a phrase from Michael Hudson where in his latest book by the same name he describes how financial parasites and debt bondage destroy an economy.

The foremost concern of the Government should be how to protect the assets held by systemic banks from being plundered. In an economy burdened by an unbearable private debt, where economic agents struggle to deal with enormous and fundamentally irreducible debts, the likelihood that the relatively small stakeholders currently in charge of the banks will commit to taking the long haul ride which may lead towards future but highly uncertain returns from normal banking business is very slim. In such circumstances, it is far more probable for them to try to make the best of the control they still have in order to maximise the return on their initial investment through Balance Sheet deals. In addition, the current shareholders in control of the large systemic banks in Cyprus know full well that in order to remain on the driving wheel they will need to be providing additional capital to offset for upcoming losses stemming from the banks’ unsustainable and under-provided debt exposures. The Bank of Cyprus has already used the leverage it has to enable it to start implementing a complicated and rather dubious plan for putting themselves in a predominant position ahead of the expected and inevitable need to recapitalise the bank. Hellenic Bank may soon follow suit while the Co-Op Bank is embarking on an aggressive effort to be privatised where the main apparent attraction for potential investors is its balance sheet rather than its long term prospects.

This is a very unhealthy and worrying base on which to build the Economy on and lay the seeds for future economic growth. In a recent paper by the author and Les Manison (Manison, Leslie G. and Savvides, Savvakis C., Neglect Private Debt at the Economy’s Peril,December 1, 2016, available at SSRN: it is pointed out that, given the unsustainable level of private debt, Cyprus has been postponing falling into a balance sheet recession by the twin effect of households using their savings to maintain consumption levels and through riding on an exceptional year in tourism. However, a balance sheet recession is imminent when inevitably savings will not be further available to support local consumption. Moreover, a significant investment is needed, but apparently not forthcoming, to expand capacity and upgrade tourist accommodation and supporting services and infrastructure.

To be able to put the Economy on a sound footing and to support a sustainable growth it is necessary to pave the way for both public and private sector capital investment into viable projects and companies with healthy balance sheets to take place. Such a Government led approach, through among other things the introduction of an independent Development and Finance Agency to aid the reconstruction process for arriving at balance sheet healthy and therefore financeable business entities, will in addition have the beneficial effect of giving commercial banks a key role to play for the proper assessment of credit risk and for providing finance for such projects and businesses. Banks will thus be able to refocus their efforts and long term strategic outlook in attaining a good return on the investment for their shareholders through gearing themselves up for creating new wealth rather than transferring and profiting from existing wealth.

Savvakis C. Savvides is an economist, specialising in economic development and project financing. He is a former senior manager at the Cyprus Development Bank and has been a regular visiting lecturer at Harvard University and currently at Queen’s University, Canada. Author page:

Categories → Οικονομία

  1. avatar
    Σάββας Τταντης on January 2, 2017 - (permalink)

    Πολυ ορθός ο Σαββιδης.

    Τραπεζα Κυπρου. Αύξησε καταθέσεις και αντί να δώσει δανεια στην οικονομία ξεπλήρωσε το ΕΛΑ. Έχει μείωση δανείων επιδη δεν δίνει άνετα και επιδη παίρνει ακίνητα έναντι των δανείων. Κοντόφθαλμη πολιτική.

    Συνεργατισμος μια διαλυμένη κατάσταση με διπλάσιους υπαλλήλους απο το κανονικό. Χάθηκαν δις , Θάνος χαθούν και αλλά.

    Οικονομία με 350 % του ΑΕΠ δανεισμός και Λένα κρατος να μην μπορει να διοχετεύσει ρευστότητα και την τραπεζα κυπρου και τις αλλες τραπεζες να μην διοχετεύουν ρευστότητα στην οικονομία τότε πραγματική ανακάμψει σε 5 εως 10 χρόνια…..

    Μια ζωή κοντόφθαλμη πολιτική…..

    Σαββας Τταντης

  2. avatar
    Φεραίος on January 2, 2017 - (permalink)

    Όπως και σε άλλες αναλύσεις που δημοσιεύτηκαν αναφορικά με την καθυστέρηση της ανάπτυξις παραβλέπεται ή υποτιμάται ο βασικός συντελεστής που επέφερε την οπισθοδρόμηση της οικονομίας. Αυτός είναι η σε μία νύκτα απώλεια (κούρεμα) τεράστιου πλούτου.
    Αυτός ο πλούτος χρειάστηκε πάρα πολλά χρόνια να δημιουργηθεί και ίσως να ήταν η κινητήριος δύναμη της οικονομίας.
    Εντελώς ερασιτεχνικά αντιμετωπίζοντας το θέμα της ανάπτυξις, πιστεύω ότι η όποια ανάπτυξη θα συμβαδίζει με τους ρυθμούς και στο ποσοστό αναδημιουργίας αυτού του πλούτου. Και αυτό θα γίνει πολύ αργά και σε μεγάλο χρονικό διάστημα, ίσως και μεγαλύτερο διάστημα από όσο χρειάστηκε να πρωτοδημιουργηθεί.
    Το να αναμένουμε από τις τράπεζες να βοηθήσουν στην ανάπτυξη είναι ορθόν, αλλά ορθότερο είναι να αναμένουμε από τον πολίτη να εργαστεί, να δημιουργήσει πλούτο για να μπορεί με την βοήθεια των τραπεζών να τον πολλαπλασιάσει. Τότε και μόνο τότε θα αρχίσουμε να καταγράφουμε σταθερούς ρυθμούς ανάπτυξις.

  3. avatar
    Sophocles Michaelides on January 2, 2017 - (permalink)

    In economics, where the laws of mathematics apply, problems and solutions are related to the sizes and distributions of key policy variables. It has been shown that nominal and real magnitudes depend on the expansion and distribution of the banking system balance sheet. The annual amount and sector allocation of credit / money are among the main factors driving economic expansion or contraction. Based on knowledge and experience, most economists would doubt that the needs of the Cypriot economy would be better served by a public Development Finance Agency than several private banking institutions.

    • avatar
      Savvakis C Savvides on January 2, 2017 - (permalink)

      Dear Sophocles in reply to your comment please note the following:

      1. I disagree that Economics is basically a mathematical discipline where the problems and solutions are determined simply by the magnitude of various aggregates. Surely, measuring can help in making the right decisions but too much reliance on mathematics and the somewhat restrictive assumptions behind them can also mislead and misguide decisions and economic policy. Nowhere was this more evident that in the damage these ideas have caused to the long recession of Japan who were the subject of wrong advice from the IMF, the OECD and many other reputable institutions. As Richard Koo comments in his book “Escape from Balance Sheet Recession and the QE trap”, “it took people so long to understand and overcome [the Japan] recession because no university teaches that technically insolvent companies will choose to minimize debt instead of maximize profit. Even today, one would be hard-pressed to find a university-level economics textbook that teaches that companies will sometimes decide to pay down debt at a time of zero interest rates. And governments seldom explain that fiscal stimulus is necessary because the private sector is paying down debt or because living standards cannot be sustained without it.”

      2. To continue quoting Richard Koo “”…the entire edifice of traditional economics is built on the assumption that the private sector always allocates resources better than the public sector. But this assumption is valid only when private-sector balance sheets are healthy” a condition that is so far from the truth in the after bail-in Cyprus. Moreover, as Koo continues to point out (and many others support this view with empirical data – such as Richard Vague, Michael Hudson and Steve Keen) “..unfortunately, most of the econometric models in use today are built around the assumption that the economy is at or near equilibrium. Such models are basically useless when the economy is far from equilibrium”, as it is suspected to be the case in Cyprus today and in many western countries today. “Yet many economists [..] are unaware of this basic limitation and use the meaningless estimates of fiscal multipliers from these models to criticize fiscal stimulus as being an ineffective waste of money”.

      3. I also beg to disagree with you that what really matters is the Banks’ balance sheets and that a credit expansion will automatically expand and grow the economy. What really matters is the state of the balance sheets of economic agents. This is indeed why Quantitative Easing is not effective in situations where corporations and households are in severe balance sheet recession and in need of repair usually after the bursting of a financial bubble.

      4. Please also note that we have never advocated for a public sector institution manned by bureaucrats and controlled by politicians. The Development Finance Agency as applied in Holland, Ireland and other countries not only is not a political instrument but it serves as a check on political decisions and public sector investments. It is created in the first place by a special legislation which guarantees its independence and also arms it with rights to control and vet any public sector and PPP investment which is higher that a minimum amount.

      • avatar
        Sophocles Michaelides on January 5, 2017 - (permalink)

        1. In economics, the main flow variables are incomes and expenditures, while the corresponding stock variable are assets and liabilities. Flow and stock balance sheets – as well as their rates of change – obey the laws of mathematics. The fact that allocations of receipts (assets) and payments (liabilities) – and therefore behaviors of agents (and sectors) – are subject to probability simply confirms the universal application of mathematics. Do you doubt that balance sheets obey the laws of mathematics?

        2. In addition, economics has its own laws. The assumption that agents – aside from central bank – ultimately control their outlays so as not to exceed their incomings is absolutely fundamental because otherwise:

        • the portrayed exchange network could not be considered as ‘economic’ in the sense of being based on the thrifty management of each agent’s scarce resources;
        • bankruptcies would arise from premeditated planning and devious conduct instead of unpredictable factors (e.g. natural disasters and inappropriate policies).

        3. Along with human dignity and time-honoured behaviour, bank lending practices should restrain households, entrepreneurs, governments, etc., from recklessly wasting their wealth and thus receiving the severe penalties that often accompany bankruptcy. The capitalist system often punishes – and gets rid of – careless, illiquid and insolvent agents and sectors by refusing them a second chance. Knowledge and experience have shown that no system has been devised that is more efficient, productive and rewarding than free enterprise.

        4. Will the proposed Development Finance Agency (DFA) (i) function in accordance with the rules of capitalism or (ii) depend on recurrent state subsidies? In the first case, have you investigated the market for DFA’s services and found that its operation will be self-sustained? In the second case, will DFA act as a revived Planning Bureau that will second-guess decisions on public and private sector investments? In such a case, how will DFA:

        • save us from financial parasites and debt bondage which are destroying the Cypriot economy?
        • improve balance sheets which, as you say, suffer from depleted equity and are in need of repair?

        • avatar
          Savvakis C Savvides on January 5, 2017 - (permalink)

          Εξ αλλού Σοφοκλή είναι ξεκάθαρο ότι έχουμε διαμετρικά διαφορετικές αντιλήψεις για το θέμα και δεν βλέπω πως μπορούν να γεφυρωθούν σε αυτό το forum.

  4. avatar
    Παναγιώτης Σαββίδης on January 3, 2017 - (permalink)

    Η τοποθέτηση του αρθρογράφου ότι πρέπει να γίνουν κεφαλαιουχικές δαπάνες σε βιώσιμα έργα και βιώσιμες εταιρείες, και μάλιστα με την στήριξη του κράτους, και με τον πρωταγωνιστικό ρόλο στις τράπεζες θυμίζει αρκετά το 2000 με το χρηματιστήριο και το 2007 με την έκρηξη στις οικοδομές.

    Καλά, δεν μάθαμε ακόμη από τα λάθη μας; Πρέπει να τριτώσει το κακό;

    Αν κοιτάξει κάποιος τις καταθέσεις των κατοίκων εσωτερικού στην Κύπρο, θα δει ότι τους τελευταίους 36 μήνες, οι μη χρηματοδοτικοί οργανισμοί, πρόσθεσαν €2,071 εκατομμύρια στις καταθέσεις τους ενώ τα νοικοκυριά αφαίρεσαν €275 εκατομμύρια από τις καταθέσεις τους.

    Οπότε, η οποιαδήποτε παρέμβαση του κράτους θα πρέπει να είναι προς την κατεύθυνση και για όφελος των νοικοκυριών.

    Ρωτήστε οποιοδήποτε τραπεζίτη ή/και επιχειρηματία τι προτιμά. Πελάτες που πληρώνουν ή περισσότερο δανεισμό;

    • avatar
      Νεφέλη on January 5, 2017 - (permalink)

      Πολύ καίριο το σχόλιο το σχόλιο του Παν.Σαββίδη.Απλά να συμπληρώσω,απαντώντας έμμεσα και σε προηγούμενο άρθρο του κ.Αντ.Ελληνα που ισχυριζόταν ότι ο αυξημένος φόρος ακίνητης περιουσίας δέν ήταν αντιαναπτυξιακός,ότι τα 275 εκατομμύρια που αφαιρέθηκαν απο τις καταθέσεις των νοικοκυριών κατα τη τριετία που πέρασε,πήγαν κατα βάσιν σ’αυτό το φόρο.

    • avatar
      Savvakis C Savvides on January 5, 2017 - (permalink)

      Με όλο το σέβας, πως μπορεί ο ορισμός της ανάπτυξης που είναι οι επενδύσεις σε βιώσιμα έργα (είτε από τον ιδιωτικό, είτε από τον δημόσιο τομέα) μπορεί να συγκριθεί και να εξισωθεί με τις φούσκες του Χρηματιστηρίου ή αυτές που δημιούργησαν οι Τράπεζες με το να χρηματοδοτούν μη βιώσιμα έργα (σε ένα μεγάλο βαθμό προκαλώντας όπως σωστά λέγεις στην έκρηξη της φούσκας των οικοδομών); Σημείωσε ότι πουθενά δεν γίνεται εισήγηση ή καν αναφορά όπως γράφεις στο σχόλιο σου με την στήριξη [ιδιωτικών επιχειρήσεων] από το κράτος! Αν διαβάσεις το άρθρο μου με τον Les Manison (αλλά και βιβλία όπως αυτά του Richard C. Koo – “Escape from Balance Sheet Recession” και “The Holy Grail of Macro Economics”) θα αντιληφθείς την ανάγκη για αναπλήρωση του χαμένου εισοδήματος σε περιόδους όπου τα νοικοκυριά και οι επιχειρήσεις είναι υπερδανεισμένες και αγωνίζονται να μειώσουν τα χρέη τους και να διορθώσουν τους ισολογισμούς τους. Κάτι που από μόνο του επιφέρει βαθιά και παρατεταμένη ύφεση. Όπως έγινε στην Ιαπωνία και σε πολλές άλλες χώρες, ακόμη και στην Αμερική στο Great Depression του 1929.

      • avatar
        Παναγιώτης Σαββίδης on January 7, 2017 - (permalink)

        Προφανώς, και αυτό είναι αποδεκτό, έχουμε διαφορετική άποψη για το πως επιτυγχάνεται η ανάπτυξη. Πιστεύω ότι η ανάπτυξη έρχεται από τους πελάτες καταναλωτές. Εσείς πιστεύεται ότι έρχεται από τις επενδύσεις σε βιώσιμα έργα.

        Όσον αφορά τις φούσκες σε Χρηματιστήριο ή δανεισμό τραπεζών και πως αυτές οι φούσκες είναι δημιούργημα των “επενδύσεων σε βιώσιμα έργα”, σας παροτρύνω να διαβάσετε prospectus για IPOs των 1998-1999, και σας παροτρύνω να πάτε πίσω σε παρουσιάσεις Κυπριακών τραπεζών από το 1998 – 2010, που μιλούσαν για την χρηματοδότηση (άλλη λέξη για δανεισμό) σε ατμομηχανές της Κυπριακής οικονομίας και άλλους παρδαλούς ευφημισμούς. Όλα τα έργα είναι βιώσιμα μέχρι να κρεπάρουν.

        Στο σχόλιο σας προς εμένα γράψατε: “Σημείωσε ότι πουθενά δεν γίνεται εισήγηση ή καν αναφορά όπως γράφεις στο σχόλιο σου με την στήριξη [ιδιωτικών επιχειρήσεων] από το κράτος!”

        Στο κείμενο σας κάνετε αναφορές στο το πώς μπορεί το κράτος να στηρίξει ιδιωτικές επιχειρήσεις. Συγκεκριμένα, “To be able to put the Economy on a sound footing and to support a sustainable growth it is necessary to pave the way for both public and private sector capital investment into viable projects and companies with healthy balance sheets to take place. Such a Government led approach, through among other things the introduction of an independent Development and Finance Agency to aid the reconstruction process for arriving at balance sheet healthy and therefore financeable business entities, will in addition have the beneficial effect of giving commercial banks a key role to play for the proper assessment of credit risk and for providing finance for such projects and businesses.”

        Εμένα το “public … sector capital investment” και το “Development and Finance Agency to aid the reconstruction process”, μου ακούγεται ως μεταφορά λεφτών των φορολογουμένων σε ιδιωτικές επιχειρήσεις.

        Επαναλαμβάνω, Αν κοιτάξει κάποιος τις καταθέσεις των κατοίκων εσωτερικού στην Κύπρο, θα δει ότι τους τελευταίους 36 μήνες, οι μη χρηματοδοτικοί οργανισμοί, πρόσθεσαν €2,071 εκατομμύρια στις καταθέσεις τους ενώ τα νοικοκυριά αφαίρεσαν €275 εκατομμύρια από τις καταθέσεις τους.

        • avatar
          Savvakis C Savvides on January 8, 2017 - (permalink)

          Νομίζω παρεξήγησες την αναφορά μου, “to aid the reconstruction process for arriving at balance sheet healthy and therefore financeable business entities” ως να αναφέρομαι σε κρατική βοήθεια. Κάθε άλλο. Απλά επειδή οι πλείστες επιχειρήσεις είναι υπερδανεισμένες (όπως και νοικοκυριά) δεν μπορούν και δεν είναι εις θέση να αναλάβουν νέα χρηματοδότηση. Γι′ αυτό χρειάζεται να δημιουργηθούν νέες (SPVs) με υγιέστερους ισολογισμούς και μικρότερα επίπεδα δανεισμού για να μπορούν να αναλάβουν νέες επενδυτικές χρηματοδοτήσεις. Δεν μιλώ ή εννοώ καθόλου κρατική υποστήριξη.

          Όσο αφορά το DFA please see my reply to Sophocles Michaelides above where I explain/clarify:

          “we have never advocated for a public sector institution manned by bureaucrats and controlled by politicians. The Development Finance Agency as applied in Holland, Ireland and other countries not only is not a political instrument but it serves as a check on political decisions and public sector investments. It is created in the first place by a special legislation which guarantees its independence and also arms it with rights to control and vet any public sector and PPP investment which is higher that a minimum amount.”

          • avatar
            Παναγιώτης Σαββίδης on January 9, 2017 - (permalink)

            Δεν παρεξήγησα καθόλου την αναφορά σας. Βλέπω ξεκάθαρα που νομίζεται ότι θέλετε να το πάρετε, αλλά υπάρχει μεγάλη απόσταση μεταξύ οικονομικής θεωρίας και επιχειρηματικής πράξης.

            Κατ’ επανάληψη, μιλάτε για υπερδανεισμένες επιχειρήσεις και νοικοκυριά. Συμφωνώ στα υπερδανεισμένα νοικοκυριά. Διαφωνώ στις υπερδανεισμένες επιχειρήσεις. Εκτός του ότι οι καταθέσεις των μη χρηματοδοτικών οργανισμών κατοίκων εσωτερικού στην Κύπρο αυξήθηκαν κατά €2,071 εκατομμύρια, στους ίδιους τελευταίους 36 μήνες, τα δάνεια των μη χρηματοδοτικών οργανισμών κατοίκων εσωτερικού στην Κύπρο μειώθηκαν κατά €2,679 εκατομμύρια. Συνολικά, τα balance sheets των μη χρηματοδοτικών οργανισμών κατοίκων εσωτερικού στην Κύπρο μεταβλήθηκαν θετικά κατά €4,750 εκατομμύρια στους τελευταίους 36 μήνες.

            Αυτό που δεν βλέπεται στην ανάλυση σας, είναι ότι όσον αφορά επιχειρήσεις, υπάρχουν ζωντανές και πεθαμένες. Στην αγορά που καθημερινά συναλλάσσεται, οι πεθαμένες έχουν ήδη κηδευτεί και σε αρκετές έχουν γίνει πολλά μνημόσυνα. Εξακολουθούν όμως να υπάρχουν στα βιβλία των τραπεζών, οι οποίες επειδή δεν πήραν τις απαραίτητες προβλέψεις, τώρα δεν μπορούν να τις διαγράψουν γιατί θα δείξουν ζημιές, κάτι που θα επηρεάσει το δικό τους balance sheet.

            Τώρα, όσον αφορά τα SPVs και τα παραδείγματα της Ολλανδίας και Ιρλανδίας. Σε αντίθεση με αυτά που γράφετε και στις δύο χώρες, είναι “public sector institutions manned by bureaucrats and controlled by politicians”.

            Ως πολίτης της Κυπριακής Δημοκρατίας, το τελευταίο που θα ήθελα θα ήταν ένα τσούρμο ατόμων με πτυχίο στα οικονομικά “to serve as a check on political decisions and public sector investments”. Γεμίσαμε με επιτροπές, υποεπιτροπές, συμβούλια, παρασυμβούλια, και ότι άλλο σκεφτούμε σε αυτόν τον τόπο.

            Δώσε μου πλήρη διαφάνεια με πλήρη αποκάλυψη στοιχείων και αποφάσεων και λογοδοσία με προσωπικές νομικές και αστικές ευθύνες αυτών που παίρνουν τις αποφάσεις. Αυτό θα πει “serve as a check on political decisions and public sector investments”.

  5. avatar
    Christos on January 9, 2017 - (permalink)

    Το βασικότερο πρόβλημα είναι πως όλες ή σχεδόν όλες οι κρατικές πολιτικές (πολεοδομικά κίνητρα και αεναη ανανέωση τους, κατάργηση φόρου ακίνητης, πωληση διαβατηρίων με την αγορά και ακινήτου) είναι στοχευμένες στο να κρατήσουν στη ζωή την χρεωκοπημένη υφισταμενη κυπριακή επιχειρητική ελίτ, δίνοντας τους leverage να πουλήσουν ακριβότερα των τιμών της αγοράς τα αδειοδοτημένα έργα τους.άρα μικρό καλάθι σε fdi και νέες με sound balance sheet και δυνατότητα να δανειστούν επιχειρησεις

    Και στην τράπεζα κύπρου αυτό θα ήθελαν εάν τους έπαιρνε… (η μάχη για να παραμείνει η προηγούμενη διοικηση με την ευλογία της αρχής εξυγίανσης και τις μετοχές που είχε στην κατοχή της η Λαικη)

  6. avatar
    Φεραίος on January 9, 2017 - (permalink)

    Βασικός συντελεστής για οικονομική ανάπτυξη ή όχι μιας χώρας είναι ο άνθρωπος.
    Όσα λεφτά και αν υπάρχουν στα “υπόγεια“ των τραπεζών, όσα σχέδια και αν επεξεργαστούν Κυβέρνηση και Τράπεζες, εάν δεν υπάρχουν εκείνα τα άτομα που θα μπορούν να τα αξιοποιήσουν για να παράξουν πλούτο η ανάπτυξη θα παραμένει το ζητούμενο.
    Δυστυχώς στην Κύπρο απουσιάζει εκείνη η απαραίτητη σπίθα για δημιουργία. Έχουμε ανθρώπους χωρίς φαντασία και όραμα για νέες και δημιουργικές επιχειρηματικές δραστηριότητες.
    Παρά τις αξιοσημείωτες ακαδημαϊκές του επιδόσεις, ο Κύπριος παρέμεινε προσκολλημένος, δυνατά δεμένος στήν νοοτροπία του τόπου του, μακριά από τις κοσμογονικές εξελίξεις και των έξυπνων μεθόδων λειτουργίας και παραγωγικότητας στον τομέα των επιχειρήσεων.

    • avatar
      Νεφέλη on January 9, 2017 - (permalink)

      Ακόμα και αυτονόητα πράγματα,άνκαι άσχετα με το θέμα,όπως η μεταρρύθμιση της τοπικής αυτοδιοίκησης,ξοδεύουμε εκατομμύρια σε ξένους εμπειρογνώμονες,διότι οι δικοί μας επιστήμονες ψάχνουν τη σιγουριά του βολέματος στο δημόσιο και όχι τη δημιουργία οίκων διεθνούς εμβέλειας.Και ν’ακούγαμε τις συμβουλές των ξένων,”στ’ανάθεμα”.Μπαίνουν στα συρτάρια.

  7. avatar
    Erol Riza on January 9, 2017 - (permalink)

    In my view Savvas has a very valid case for proposing a non commercial bank as the financing entity since banks are highly regulated and it is clear that post crisis the source of capital investment is not the banking system. The EU countries have relied on banks to fund their investment but this is changing and the non bank sector is taking over the financing of many sectors of the economy as insurnce companies and pension funds are seeking assets with duration and less volatility in returns. Sadly the reform in Cyprus will take time as the economic model has not adapted to the changes we are witnessing globally and relies on real estate and tourism.

    Notwithstanding the two challenges above, the limitation of banks to fund development and the economic model, there is scope for development if there is swift financial reform in order to introduce more financial instruments, or vehicles, in order to mobile domestic savings and to attract foreign direct investment. Both require the government to act to introduce the legal framework and tax incentives. Two such examples can be Real estate investment trusts to make investment in selected sectors more liquid. Such trusts can be listed on the Stock Exchange and regulated by CySec. This is a well tested investment vehicle and can aid the overseas investment in Cyprus. Secondly another intstrument known as Development Equity Certificates can be a form of security that banks can issue to attract investment in projects linked to restructured NPLs, as suggested by Savvas in another form as in Special purpose vehicles.

    The above financial reform is long overdue and Cyprus can get technical assistance from the EBRD or IFC. There is no reason not to reform the capital investment instruments that can facilitate project financing in Cyprus. These reforms would complement any debt raising entity which I would call a Business Development Afency as in the U.K. which is the British Business Bank. Clearly there is scope for such reform and Savvas has highlighted the fact that capital investment will be necessary to provide sustainable development in sectors such as energy and possibly infrastructure. Whilst the banking system is focused on allocating credit it is not well placed to take risk as development and growth require equity risk capital and the private sector, supported by the public sector with egal and tax incentives, can do a better job.

    • avatar
      Sophocles Michaelides on January 9, 2017 - (permalink)

      Although all sorts of financial instruments and incentives may be created, the crux of the matter remains ‘‘Where do we find the necessary capital for the desired tasks?’’ As Demosthenes said more than two and a half thousand years ago, ‘‘We need money, for sure, Athenians, for without it nothing can be done that ought to be done’’. The sources of funds may be classified as:
      • internal or external, and
      • private or public.
      Economic exchange relies on the thrifty management of scarce resources while sustainable development depends on agent, sector, etc., incomings exceeding their outgoings. If a business project is not viable, the money invested in it will be wasted. From science and practice, we know that the same criteria (regarding cost, return, etc.) apply irrespective of the origin of funds.

      • avatar
        Anonymous on January 10, 2017 - (permalink)

        Agreed the financial returns have to be in place to attract investment capital. Also agree that if a project is not financially viable investment will be wasted. Equity investors in the private sector are not philanthropists and indeed will ONLY invest if they feel they will be rewarded.
        I am at one with you on the theory but what do you propose to address the absence of domestic equity capital that is missing and how does Cyprus attract foreign direct investment? Unless you feel there is nothing in Cyprus that local or overseas investors can find financially viable and worth investing. This would be very disturbing since sustainable growth depends on investment, public or private.

      • avatar
        Savvakis C Savvides on January 11, 2017 - (permalink)

        The main message of the article is that the conditions for growth, almost four years after the bail-in have not improved and are still not present. To sum up, we have:

        1. Weak Consumer Demand (except for tourism but where nevertheless our capacity is limited and not expanding),
        2. Highly indebted economic agents (households and corporations),
        3. An unstable banking system which is fraught with asset ripping risks.

        In such dire circumstances, simply something has to give. The conditions impeding development will not just go away. We need to do something about it. Being in denial will only make things worse.

  8. avatar
    Savvakis C Savvides on January 9, 2017 - (permalink)

    Dear Erol,

    Thank you for your comment. You know me quite well, unlike some others commenting here it seems, to know that I am never in favour for bureaucratic solutions to any economic problems. However, there are two needs in the current state of the Economy in Cyprus which require some not so ordinary solutions.

    The first is the need to find a solution for the depleted equity of economic agents and particularly corporations and the danger of the economy falling into a long and deep recession and the second, which is equally important, is the need to provide a check on the ability of politicians to apply crony capitalism solutions to public sector projects or public-private-partnership type of investment projects (such as energy, casinos, ports and marinas, infrastructure and many others including those state-owned companies which are under privatisation).

    It is exactly for these reasons that I think a DFA type of professional, if done properly and enacted through special legislation institution, and yes I repeat, independent organisation can provide the solutions which are in the public interest and a check on the ability of Government officials and politicians to promote non-transparent, dubious and even occasionally, corrupt solutions.

    • avatar
      Erol Riza on January 12, 2017 - (permalink)


      There is an absence of equity in Cyprus and despite the various attempts by government, CIPA delegations an conferences the business plans and projects are not viable. The problem is that all projects are driven by the ownership of land by project developers and not driven by the business case. The government could help by completely liberalising energy so that solar with storage attracts foreign direct investment; the snail’s pace reform has cost Cyprus dearly in lack of significant investment in solar when Cyprus has some of the best solar irradiation in the world. Sadly the Troika did not complete its mission to privatise some of the public sector utilities which are kept alive to please privileged interest groups. I would agree with your proposal for a DFA if there was a long list of infrastructure projects which would attract foreign equity investment and supported by debt from multilateral agencies as you have proposed from time to time.
      I am not overly concerned about the crony capitalism for if it hinders foreign direct investment it is to the detriment of growth and jobs and in the end the government of the day will bear the cost in the elections. If Cyprus wants to rise in the list of business friendly centres, other than tax, it has to streamline the planning application process and reduce bureaucracy. What happened to the fast track process for approval? To sum up DFA much better than a development bank but we do need liberalisation of the economy and here there is unfinished business.

  9. avatar
    Erol Riza on January 13, 2017 - (permalink)

    A recent news story which could be useful to make investment in Cyprus on a more sustainable path than the selling of EU passports. We will not see the Anglo Saxon opportunistic investors as the bid/offer is so wide but for selected projects in tourism, existing commercial property and possibly healthcare there may be good reason for overseas investors to consider a more liquid and transparent investment vehicle. Are we capitalising on Middle East and EU large pools of investment?

    In 2012, when Spain was in the middle of the meltdown, only opportunistic investors, predominantly from the Anglo-Saxon market, invested in the country. At the time, their key acquisition targets were low-priced assets – in any range.

    That changed in 2013, when the economy started to show moderate signs of recovery. Almost immediately, other funds from Europe showed interest in Spain again. In the meantime, this trend has intensified. European and Asian institutional funds are moving in and the Spanish REIT regime (Sociedad Anónima Cotizada de Inversión en el Mercado Inmobiliario, or SOCIMI) has grown considerably too, acquiring assets worth more than €4 billion.

  10. avatar
    nag on January 13, 2017 - (permalink)

    From Wikipedia

    “Crony capitalism is a term describing an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of state interventionism.”

    “Cronyism is the practice of partiality in awarding jobs and other advantages to friends or trusted colleagues, especially in politics and between politicians and supportive organizations”.

    The definitions are there but we choose to obfuscate their true meaning when they concern us (self-serving), our family, our friends, our political party etc. Instead we follow Roger Stone’s rules: Deny everything, admit nothing, launch counterattack.

    Do you really believe that anything has changed after the Financial Crisis in relation to cronyism, graft and preserving/promoting special interests? On the contrary efforts have intensified to regain power and control. See for instance their interventions in banking and other economic sectors (public and private). We have been at the precipice of economic annihilation, our plight is far from over, and still the political and economic establishment does not get it; they have tightened their grip instead.

    They have literally hijacked the free economy and the market. Unless the economy is left unobstructed to work on its own (with proper supervision where necessary of course) nothing will change. Government spending is better left for infrastructure projects only; unfortunately we have seen how “well” they allocate funds in this area; let’s not give them the means to use their “invisible hand” elsewhere as well.

    DFAs may have worked elsewhere but it is doubtful that it will work here as it should, considering the above. Our history says that they will also control/manipulate this type of institution as well.

    • avatar
      Savvakis C Savvides on January 18, 2017 - (permalink)

      Dear nag,

      Thank you for your comment with which I agree. Crony (and corrupt) or even “crap” capitalism is going on today in many countries and I guess Cyprus is no exception. A DFA does not guarantee that we will be rid of this decease. But it may make it a lot more difficult to take place than what is the case today. In my almost 30 years experience with the Cyprus Development Bank (when it was a truly professional institution) it managed to stay away such practices and also made it extremely difficult for behind the scenes deals to take place. Consider what is the situation today where major projects are embarked upon and on the decision of politicians without even the requirement for transparent procedures and objective studies.

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