The International Monetary Fund has said it will not release a further €88m (£69m/US$108m) in bailout money for Cyprus on Friday after the country’s parliament delayed a key foreclosure law that was due to take effect at the end of December.
“Following today’s suspension of the existing legislation on foreclosure, critical requirements for the completion of the fifth programme review are now no longer met,” the IMF said in a statement. Its board had been set to discuss Cyprus’s progress with the loan programme on Friday and was thought likely to release the next instalment of aid.
Cyprus needed an international bailout of €10bn (£7.8bn/US$12bn) from the European commission and the monetary fund in early 2013, largely due to problems in its banking sector.
The eurozone released its latest tranche of bailout loans to Cyprus in November after the government amended laws on foreclosures and on forced sales of mortgaged property in line with the conditions of the loan. The original laws would have made it easier for the country’s hobbled banks to start collecting on bad loans, which account for around half of all loans.
The IMF said it would discuss the “next steps” with Cypriot authorities. The European Union had released a €350m instalment prior to the vote, bringing the amount of bailout cash given to Cyprus so far to €5.7bn.
Lawmakers said they approved the suspension to give the government time to draft additional insolvency legislation that would act as an extra buffer protecting those who lost jobs or saw their income slashed amid the country’s near financial meltdown from also losing their homes.
But finance minister Harris Georgiades called the suspension “unnecessary and inexcusable”, adding that it undermined Cyprus’s credibility.
“It simply sends the message that we haven’t overcome a mindset and attitudes that have so dearly cost us in the past,” said Georgiades.
Government officials have said Cyprus’s steadfast adherence to the terms of its rescue programme is mainly responsible for the country consistently beating dour projections regarding its post-bailout economic performance.
The economy is projected to grow 0.4% next year, which would bring an end to a three-year recession that has been shallower than expected.
This is the second time that Cyprus has run into trouble with its creditors over the foreclosures law. In September Cyprus’s eurozone partners refused to release a bailout instalment after parliament passed additional legislation weakening the law. The hurdle was overcome after lawmakers backtracked and amended some of the legislation while the supreme court struck down other pieces as unconstitutional.
Reuters and the Associated Press contributed to this report