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Cypriot Finance Minister Michael Sarris quit on Tuesday after concluding talks with foreign lenders on a bailout that forced the island to slap unprecedented losses on bank depositors in return for aid.
The news came after Cyprus announced a partial relaxation of currency controls, raising the ceiling for financial transactions that do not require central bank approval, but keeping most other restrictions in place.
Sarris, who was dispatched to Moscow last month but returned empty-handed as Cyprus sought Russian aid after rejecting a European bank levy proposal, said his main goal of agreeing to a deal with lenders had been accomplished.
He said it was also appropriate to resign since he was among several people under scrutiny by a team of investigators looking into the collapse of the country's banking system. His resignation was accepted by the government.
“I believe that in order to facilitate the work of (investigators) the right thing would be to place my resignation at the disposal of the president of the republic, which I did,” Sarris said.
Before quitting, he said it was not clear when the remaining capital controls would be lifted.
The island introduced curbs on money movements when banks reopened on March 28 after a two-week shutdown while the government negotiated a euro 10-billion bailout from the International Monetary Fund and the European Union.
Cyprus's status as a financial hub has crumbled in the space of a fortnight after authorities were forced to wind down one bank and slap heavy losses on wealthier depositors in a second in return for the financial aid.
Its capital controls are a first for the Euro zone, introduced by Cyprus as it strives to prevent a cash drain.
Bailout terms disclosed
A finance ministry decree on Tuesday, the third since controls were first introduced, raised the ceiling on transactions which do not require central bank approval to euro 25,000 from euro 5,000. It also permits the use of cheques worth up to euro 9,000 per month.
Other restrictions introduced last week, including a euro 300 per day cash withdrawal limit and a euro 1,000 limit on the amount travellers can take overseas, remain in place.
The decree — signed by Sarris and dated April 2 — is valid for two days. Cypriot officials have said it could take up to a month for restrictions to be fully removed.
Cypriot President Nicos Anastasiades, who has been in power for just over a month, says he was forced to accept onerous terms imposed by lenders to avert a default and an exit by the island from the Euro zone.
Under the terms of the deal, Cyprus will have until 2018 to carry out measures to shore up its finances and begin to receive aid starting in May.
The island will pay an interest rate of 2.5 per cent on its rescue loans, with repayment starting in 10 years. The loans will repaid over 12 years.
On Tuesday, Anastasiades appointed three retired Supreme Court judges to investigate political, civil and criminal responsibilities over the demise of the economy, one of the bloc's smallest.
Cyprus last week agreed to break up its No. 2 lender Popular Bank, kept on an ECB liquidity lifeline for months, into a “good” and a “bad” bank. The bank's “good” assets will be transferred to Bank of Cyprus, where depositors have been forced into accepting massive losses on uninsured deposits of more than euro 100,000.
The process, known as a “bail-in” sees 37.5 per cent of deposits exceeding euro 100,000 converted into equity in the bank, and an additional 22.5 per cent used as a buffer which could also be converted into equity if circumstances warrant it.
In a deal brokered early on Tuesday morning, it was also agreed that a small portion of the remaining 40 per cent in uninsured deposits effectively frozen under the arrangement, 10 per cent, be unblocked.
The Cypriot government had unsuccessfully argued that the entire 40 per cent be unblocked, a source familiar with the consultations said.
