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Draconian controls as Cyprus banks set to reopen

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(Globalpost/GlobalPost)

Cypriots will finally get access to their bank accounts later on Thursday after a nearly two-week lockdown, but under tight restrictions unprecedented in the eurozone.

With world markets still jittery over the crisis, the banks -- closed since March 16 -- will reopen from 12:00pm (1000 GMT) until 6:00pm (1600 GMT), the central bank confirmed.

But Finance Minister Michalis Sarris has imposed temporary limits on daily withdrawals to 300 euros ($385) to prevent a run on the banks that could wreak havoc on the island's already fragile economy.

He also banned the cashing of cheques and ordered those travelling abroad not to take more than 1,000 euros out of the country.

Five shipping containers reportedly filled with billions of euros were delivered to the central bank in Nicosia late Wednesday, an AFP photographer said.

Under a deal agreed in Brussels on Monday, Cyprus must raise 5.8 billion euros to qualify for a 10-billion-euro bailout from the "troika" of the European Union, European Central Bank and International Monetary Fund.

Depositors with more than 100,000 euros in the top two banks -- Bank of Cyprus (BoC) and Laiki or 'Popular Bank' -- face losing a large chunk of their money.

Cyprus also agreed to major reforms to its banking system, which is heavily dependent on Russian money -- an estimated $31 billion in corporate and private deposits.

Monday's deal kept the Mediterranean island from crashing out of the euro -- but it has provoked fury at home.

On Wednesday, around 1,500 anti-austerity protesters marched on the presidential palace to protest the EU-IMF rescue package, which delivers a major hit to big depositors and threatens thousands of jobs.

Under the government-imposed restrictions, money transfers to accounts outside Cyprus are forbidden, with some exceptions, and there is a limit of 5,000 euros monthly in credit or debit card purchases while abroad.

Sarris said the strict capital controls would be temporary.

But in comments to the private television station Sigma on Wednesday night he warned: "We will see worse days in 2013... the economy will go into deeper recession."

Cyprus is the first eurozone country to impose capital controls after bailouts -- unlike Greece, Spain, Portugal and Ireland, which have also received multi-billion-dollar rescue packages.

Sarris's decree said that the restrictions were in place to prevent a run on the banks as depositors tried to get their money out, which would see the financial system collapse and destabilise the economy.

The bailout involves restructuring BoC and eventually winding down Laiki, whose "good" assets will be absorbed by the bigger bank.

BoC chief executive Yiannis Kypris was sacked by the central bank governor on Wednesday a day after the bank chairman's resignation was rejected.

Laiki depositors face losses of up to 80 percent on deposits above 100,000 euros, while BoC savers have been warned they stand to lose 40 percent.

Thanks in part to comments by Eurogroup chief Jeroen Dijsselbloem Monday that appeared to suggest the harsh terms of the Cyprus deal could be repeated elsewhere -- comments later retracted -- the markets remained nervous.

At one point Wednesday the euro sank to below the $1.28 line for the first time since November. In Tokyo trade Thursday morning, the euro was still under pressure, fetching $1.2785 and 120.33 yen.

European and US stock markets closed down, and in early trading Thursday in Asia markets were also slipping amid fears over Cyprus.

Investors were worried about "the 'contagion effect' of a possible run on banks spreading to other parts of the eurozone," SMBC Nikko Securities general manager of equities Hiroichi Nishi told Dow Jones Newswires.

Bank employees union ETYK have appealed to the public not to take out their frustrations on bank staff, saying that they too are "victims of criminal acts".

In the Greek capital Athens on Wednesday night, a bomb exploded near the home of former BoC executive Nikos Tsakos, a Greek ship owner who had served on the board of the Cypriot lender. Nobody was injured.

bur-jj/pdh

http://www.globalpost.com/dispatch/news/afp/130328/draconian-controls-cyprus-banks-set-reopen