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Cyprus' Bank Deposit Tax Would Hit Russian Wallets


As Jim Zarroli mentioned, Russians are the main foreign depositors in Cyprus. They've used the island as an offshore haven, thanks to low taxes and lax regulations, same things that have lured some rich Americans to bank in, say, the Cayman Islands. Well, according to Moody's Investor Services, Russian banks and businesses have around $30 billion in Cypriot accounts and that's why today, Russian President Vladimir Putin lost no time in denouncing the tax on bank accounts as unfair, unprofessional and dangerous. Those were his words.

NPR's Corey Flintoff is on the line with us from Moscow. And Corey, beyond President Putin, what other reaction are you hearing in Russia today?

COREY FLINTOFF, BYLINE: Well, actually, President Putin's reaction was fairly restrained compared to some of the things that we were hearing today. Some business people in Russia are calling this a nationalization or an expropriation of private property and they're really indignant about it. There's a strong connection between the Kremlin and some of the banks and the businesses that are doing business in Cyprus, so the tough government response wasn't really surprising.

But in the past few months, Putin has been urging that this offshore wealth be returned to Russia to be invested here, but we certainly weren't hearing any of that talk today. The Cypriot finance minister was supposed to visit Moscow today for talks on extending about $3 billion worth of Russian loans to Cyprus, but that visit has now been put off for at least a couple of days.

SIEGEL: Well, do the Russians think that all of their expressions of wrath over this will change any minds in Cyprus?

FLINTOFF: I talked to a couple of economists who told me that despite all the Russian money in Cyprus, Russian pressure isn't likely to change any minds in the Cypriot government. An economics professor pointed out that various Russian officials all floated their own suggestions for resolving the crisis and those included things like Cyprus should take its 10 percent only from the interest that those Russian accounts were earning in Cyprus and that would be only a tiny portion of what Cyprus needs.

So, her take on it was that if the Cypriots have to choose between the European bailout or Russian help, she was pretty sure that they'd choose the European option.

SIEGEL: Well, with over $30 billion in Cypriot accounts, do the Russians think that if this plan actually were to go through in Cyprus it could do real damage to their economy?

FLINTOFF: There mere suggestion of it was enough to weaken the value of the Russian ruble today and it caused nearly a 3 percent drop in Russia's main stock index. But economists that I talked with told me that if this plan goes through, it will be extremely painful for some Russian banks and some businesses. It'll amount to about $3 billion. But in terms of Russia's overall economy, that's only a tenth of a percent of the country's GDP.

There is a scenario that worries Russian financial officials a lot more, though, and that's the possibility that in addition to this one-time levy on people's bank accounts, Cyprus might impose a moratorium on paying off its loans. And this is Ivan Tchakarov. He's the chief Russian economist for the investment bank Renaissance Capital. He says Russian banks have outstanding loans worth about $40 billion to Cyprus, so a moratorium could really hurt.

IVAN TCHAKAROV: If that were to happen, it means that Russian banks would not be getting any of these $40 billion of loans. These $40 billion, this would amount to about 2 percent of GDP. So this could be a non-trivial amount.

FLINTOFF: So with a typical economist understatement, he calls it a non-trivial amount, but he stresses that so far that's only talk. Basically, the Russian financial community is just waiting now until tomorrow to find out if this is just a kashmar, a nightmare, or rather something that's really going to come true.

SIEGEL: That's NPR's Corey Flintoff speaking with us from Moscow. Corey, thank you.

FLINTOFF: My pleasure, Robert. Transcript provided by NPR, Copyright NPR.

Prior to his retirement, Robert Siegel was the senior host of NPR's award-winning evening newsmagazine All Things Considered. With 40 years of experience working in radio news, Siegel hosted the country's most-listened-to, afternoon-drive-time news radio program and reported on stories and happenings all over the globe, and reported from a variety of locations across Europe, the Middle East, North Africa, and Asia. He signed off in his final broadcast of All Things Considered on January 5, 2018.