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Cyprus controls expected to hit foreign transactions

Island’s banks to open today after nearly two weeks since crisis began

Cyprus is expected to stop people taking their money out of the country but will not restrict dealings at home as it tries to avert a run on its banks after agreeing a tough rescue package with international lenders.

Bank of Cyprus chief executive Yiannis Kypri has been removed on the orders of the Central Bank

Cypriots have taken to the streets of Nicosia in their thousands to protest against a bailout deal that will push their country into an economic slump and cost many their jobs. European leaders said the deal averted a chaotic national bankruptcy that might have forced the island to leave the eurozone.

With banks due to reopen today after nearly two weeks, Finance Minister Michael Sarris said capital controls will be “within the realms of reason” and a business leader said he had been told they would affect only international transactions. “We will look at the best way to limit the possibility of large sums of money leaving, and not imposing punitive conditions on the economy, businesses and individuals,” Sarris told local television.

Speaking after meeting government officials, the head of the Cyprus Chamber of Commerce said: “We have been assured that limitations will not affect transactions within Cyprus at all.”

“Where there will be limitations is on what we spend abroad and also on capital outflows,” Phidias Pelides told reporters.

The Central Bank governor said earlier that “loose” controls would apply temporarily to all banks. Even earlier, the finance minister said they could be in place for weeks. Banks have been shut since final bailout talks got under way in mid-March.

Russia, whose citizens have billions of euros in Cyprus and use Cypriot banks to move money around even among Russian firms, cautioned Nicosia against imposing onerous controls on healthy banks and noted that Moscow was reviewing loan terms to Cyprus.

“If there are such measures, this will not foster trust but only provoke additional problems for participants, depositors,” Russian Finance Minister Anton Siluanov said on Tuesday. He cautioned that Russian willingness to restructure and extend a €2.5 billion loan made in 2011 would depend on the island’s decision on capital controls.

“We will discuss (restructuring of the loan) in the context of the decisions the parliament adopts,” he said. “We are prepared to discuss within these parameters.”

State-controlled Russian bank VTB has a subsidiary in Cyprus, Russian Commercial Bank, which has not been directly affected by a bailout deal which focuses on big local banks that lost badly in the restructuring of debts in neighbouring Greece.

The terms of the €10 billion rescue from the European Union, International Monetary Fund and European Central Bank have stirred popular anger within Cyprus at the country’s partners in the EU, notably Germany, the bloc’s main paymaster and fiercest advocate of austerity.

On Tuesday, hundreds of high school students protested at parliament, in the first major expression of popular anger since the bailout was agreed in the early hours of Monday in Brussels. The deal largely side-stepped the Cypriot parliament, and has triggered opposition calls for a referendum.

Outside the Central Bank on Tuesday, about 200 employees of the country’s biggest commercial lender, the Bank of Cyprus , demanded the resignation of Central Bank governor Panicos Demetriades, chanting “Hands off Cyprus“ and “Disgrace”.

Dimos Dimosthenous, a veteran Bank of Cyprus employee, said: “The bank is being driven to closure. That will be the end.”

A Bank of Cyprus official said its chief executive, Yiannis Kypri, had been removed on the orders of the Central Bank.

It follows the appointment of a special administrator to run the bank, which is being restructured as part of the bailout deal, and an offer to resign by its chairman, Andreas Artemis.

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