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Counting the Cost

Cyprus: Is there a Russian solution?

After standing up to the institutional might of the troika, debt-ridden Cyprus looks to Moscow for financial help.
Last Modified: 23 Mar 2013 07:52

Cyprus is a small nation that barely makes a dent in the eurozone's economy, but the country has been crippled by the region's sovereign debt crisis.

Cyprus knocked back a bailout to save its insolvent banks from the so-called troika: the European Central Bank (ECB), the International Monetary Fund (IMF) and the European Commission (EC).

The bailout broke a banking taboo by partially seizing deposits in what appeared to be an attempt to target Russian businesses, oligarchs and alleged mafia money.

Nicosia has been on life support, existing in part thanks to a $2.5bn loan from Moscow. It has until June to figure out a solution before it defaults. But the ECB says it will stop providing much needed cash for its banks before then.

But why is the country's banking system in crisis?

At the end of January, assets held by banks in Cyprus stood at $164bn, which is seven times the size of the economy.

Trouble started when the troika forced Greece's creditors to take losses because Cypriot banks held Greek sovereign debt and they had to take losses of almost $6bn.

The country's three biggest banks had losses of $8.4bn in 2011, and cannot raise money to keep their businesses going without help from the ECB.

According to Moody's Investors Service, Russian corporations and individuals stashed $31bn dollars in Cypriot banks. With the eurozone's plan to make depositors contribute to the cost of the bailout, Russians stood to lose $3.1bn.

Russian billionaire Dmitry Rybolovlev is the largest shareholder in the Bank of Cyprus with a 9.7 percent stake; the Bank of Cyprus has one-third of its branches in Russia.

Vladimir Putin, the Russian president, described the levy on Cypriot deposits - many of which are Russian-owned - as "unfair, unprofessional and dangerous".

But what is the attraction for Russian investors in Cyprus? On this episode of Counting the Cost, Al Jazeera's Robin Forestier-Walker goes to Moscow to find out.

We also speak to Dimitry Afanasiev, the chairman of the law firm Egorov Puginsky Afanasiev & Partners, about Russia's role in Cyprus.

He says: "I certainly hope that Russia is going to step up and play a role because I do believe that the resolution of the current financial crisis is affecting Cyprus [and] needs to have the involvement of not only EU, which is really Berlin, but also that of Moscow and frankly, London as well. That needs to be a packaged solution and I think Russia should definitely be part of it .... Cyprus has three advantages for Russian business people: First, it is part of EU with a modern functioning European democracy; second, it has English law and English legal traditions; and third, it's very friendly to Russia. And it has a double-taxation treaty, which allows people doing business in Russia to avoid so-called double-taxation. which means that when they have to pay the tax in Russia, they can repatriate their money out of Russia and do not pay tax in Cyprus."

With banks likely to be shut for more than a week, we look at how small Cypriot businesses are coping and what they want from Nicosia and Brussels as they struggle to stay afloat.

Whatever happens next, Cyprus's finances are in trouble, and the majority of the burden is expected to fall on the shoulders of small savers and business owners. Al Jazeera's Jonah Hull met one family in Nicosia who is already paying the price.

Who controls Iraq's oil?

It has been 10 years since the US and its coalition partners launched the war on Iraq. At the time, many questioned Washington's intentions, saying it was a grab for Iraq's oil - the fifth-largest reserve in the world.

US Big Oil does have a stake in Iraq, but so do many other nations. And the picture today is a divided Iraq, with the Kurdistan Regional Government and Nouri al-Maliki's government in Baghdad at loggerheads.

The northern part of the country is controlled by the Kurds; it has about 24 billion barrels of oil. In the South there are proven reserves of 107 billion barrels, directly under the control of Baghdad.

Despite that, US giant Exxon is willing to forgo developing its field there, and wants to work with the Kurds in the North.

In total, the country has 143 billion barrels of oil, with more oil being produced now compared to a decade ago.

Iraq made $7.8 billion dollars a month last year from the sale of oil, and the economy is expected to expand almost 15 percent this year, according to the International Monetary Fund. Over the next 20 years, Iraq could earn more than $6tn.

But the reality on the ground is that many Iraqi's do not see the benefit of a hydro-carbon economy. Blackouts, bombings, poor infrastructure and corruption are part of their daily lives.

So, where is the money going? Where is all the money the US poured in to the country? And who controls the Iraq's oil?

Al Jazeera's Rosiland Jordan examines the promises made and what went wrong.

And as the Kurdish controlled area in Northen Iraq has been signing lucrative oil contracts with international oil companies and creating tensions with Baghdad, we caught up with Issam al-Chalabi, the former Iraqi oil minister under Saddam Hussein's regime, to talk about the economic and the political implications of these disputes.

 
Watch each week at the following times GMT: Friday: 2230; Saturday: 0930; Sunday: 0330; Monday: 1630. Click here for more Counting the Cost.

Follow Kamahl Santamaria @KamahlAJE and business editor Abid Ali @abidoliverali

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Al Jazeera
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