While the Republic of Cyprus may be making headway in repairing its flailing economy, some Greek Cypriots looking to protect their assets from harsh capital controls have found an alternative by turning north to Turkish Cypriot banks in the land of their traditional nemesis, according to officials.
Standard & Poor's raised Cyprus' sovereign debt rating to B- from CCC+ last week, but the country continues to struggle under big financial burdens.
Ever since President Nicos Anastasiades of Cyprus agreed to Europe's $13 billion bailout, to avoid imminent bankruptcy in March, Cypriots have seen the government confiscate 9.9 percent of the assets of anyone holding more than $136,000 in a Cyprus bank.
The government not only confiscated money from depositors but also further restricted access to money via strictly enforced capital controls that limited cash withdrawals, credit card transactions, money transfers and check cashing. All this was a state effort to staunch the flow of hard currency out of the country.
In light of the strict austerity measure, some Greek Cypriots have been slowly moving their funds to the northern part of the nation, which has been occupied by Turkish troops since civil war divided the island in 1974. The exact amount being moved is unknown, but officials say they have been seeing a trend.
The division led to separate economies; the south uses the euro, the north the Turkish lira, leaving the breakaway Turkish Cypriot north unscathed by the banking crisis as it's linked to the Turkish banking system.
“The amount of deposits in our bank is on the rise, so I suspect a big portion of the funds are running away from the banks in the south and being deposited in the north, because we don’t have any restrictions on the amount of withdrawals that could be made, it is quite safe,” Ozdi Nami, the foreign minister of North Cyprus, told International Business Times in an interview.
Under the measures enforced by the Anastasiades government, Cypriots are allowed to withdraw only $407 in cash per day and transfers of more than $6,800 require permission from the central bank.
In addition, overseas credit card transactions are limited to around $6,800 per month, and citizens leaving the country can take only about $4,100 per trip, according to the Central Bank in Cyprus.
“It is very strong,” Dr. Gunay Cerkez, president of the Turkish Cypriot chamber of commerce, told IBTimes, referring to Turkish Cypriot banks. “Now some of the people who live in the south use our banking system in the north, despite the fact they do not recognize us … They want to escape the situation in the south, which is very restrictive,” he said.
The banking system in northern Cyprus was not affected by the March crisis, but other parts of its economy were. Many Turkish Cypriot construction workers who used to work in the south are now out of work. Shopkeepers and venders also said sales have fallen from their Greek Cypriot customers. Now instead of shopping, they cross to the north to withdraw money because there is no limit, the merchants say.
While the economic crisis on the small island nation looks bleak, President Anastasiades is remaining positive, again pointing out the recent S&P upgrade.
"The upgrade from one of the stricter rating agencies, Standard and Poor's -- the first after three years of continuous downgrades -- is the result of painful sacrifices of our people and also the consistent and firm policy the government and political forces have followed these past eight months," Anastasiades said. "Messages such as this one foster the gradual restoration of confidence in the Cypriot economy, which is essential to kick-starting the economy as soon as possible."