Emerging nations risk Cyprus contagion: World Bank

BEIJING Sun Mar 24, 2013 8:55pm IST

Thousands of bank employees protest outside the parliament in Nicosia March 23, 2013. Cyprus said on Saturday it would tax big savers at its largest bank in a dramatic U-turn as it raced to satisfy European partners and seal an 11th-hour bailout deal to avert financial collapse. REUTERS/Yannis Behrakis

Thousands of bank employees protest outside the parliament in Nicosia March 23, 2013. Cyprus said on Saturday it would tax big savers at its largest bank in a dramatic U-turn as it raced to satisfy European partners and seal an 11th-hour bailout deal to avert financial collapse.

Credit: Reuters/Yannis Behrakis

Related Topics

Polluted waters of China

Polluted waters of China

Growing cities, overuse of fertilizers, and factory wastewater have degraded China's water supplies to the extent that half the nation's rivers and lakes are severely polluted.  Slideshow 

BEIJING (Reuters) - Developing nations must be ready for a financial market selloff if the Cypriot banking sector collapses, World Bank Managing Director Sri Mulyani Indrawati said on Sunday, urging a swift resolution to the crisis in Cyprus.

In an interview on the sidelines of a forum in Beijing, Indrawati said she is watching very closely the outcome of a plan to levy a one-off tax on Cypriot deposits as part of a deal to obtain a 10 billion euro bailout from the EU.

Her remarks contrast with those of German politicians, who have suggested contagion from Cyprus, an island of a million inhabitants, would be limited. Europe's financial markets have also traded in relative calm since the Cyprus crisis flared up.

Yet with attention on Cyprus, a poor reception from investors to the final plan to save the Cypriot economy may be contagious and could threaten other vulnerable nations, especially those in Europe, Indrawati said.

"The first impact on this global environment from this Europe situation comes from perception because it is psychological," she said.

"And that is contagious because it is coming from the capital market, from the equity market, from the financial sector."

Cypriot President Nicos Anastasiades is seeking a last-minute reprieve from financial meltdown at talks in Brussels on Sunday, racing against a Monday deadline to avoid a financial collapse and the nation's potential exit from the euro zone.

Cyprus' overgrown banking sector is suffering from investment losses in Greece, and the EU says the island must raise 5.8 billion euros on its own before it can receive a 10 billion euro bailout.

A Cypriot official said the government had agreed on a 20 percent levy over and above 100,000 euros at the country's largest bank. An earlier proposal that included a levy on small savers sparked public demonstrations and was rejected by lawmakers.

"We have to watch very carefully what is happening in Cyprus," Indrawati said. "Not only the psychology but ... settlement related to the banking system and the treatment of deposits," she said.

"The global economy cannot afford to have more volatility again. That is why policymakers need to do the right thing in a very quick way so as to reduce the volatility and the uncertainty," she said.

(Reporting by Koh Gui Qing; Editing by Giles Elgood)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Top News

REUTERS SHOWCASE

Kerry's India Visit

Kerry's India Visit

Kerry presses India on WTO deal ahead of arrival  Full Article 

Big Infra Deal

Big Infra Deal

Piramal, Dutch APG tie up for $1 bln infra investment  Full Article 

E-Commerce

E-Commerce

Amazon says to invest $2 billion more in India   Full Article 

Lupin Results

Lupin Results

Q1 net profit up 56 percent on higher U.S. drug sales   Full Article 

L&T Slumps

L&T Slumps

L&T earnings raise 'multiple red flags' - Citi  Full Article 

Twitter Results

Twitter Results

Twitter assuages growth concerns for now as shares soar 35 percent  Full Article 

Auto Sector

Auto Sector

VW closes in on Toyota as global auto leader  Full Article 

Fed Meeting

Fed Meeting

Fed seen trimming bond buys, could offer vague rate clues  Full Article 

Gaza Conflict

Gaza Conflict

Israel strikes house of Hamas Gaza leader, digs in for long fight.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage