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TheStreet Open House

Cyprus' Banking Revamp Underpins Economic Reboot

MENELAOS HADJICOSTIS

NICOSIA, Cyprus (AP) â¿¿ It's been just over 100 days since its financial rescue and Cyprus is struggling to cope with life under the terms of its international bailout.

The country's shell-shocked banking system is still reeling from a punishing restructuring while harsh capital controls at the banks are holding back spending. All of which is hitting Cyprus' fragile economy, which is projected to shrink by more than 9 percent this year while unemployment is expected to soar. At the same time, international ratings agencies are warning that the country has defaulted on its debts.

To keep its government going and the country's financial sector from imploding, Cyprus in March negotiated a 23 billion euro ($30 billion) financial rescue package with its euro partners and the International Monetary Fund. In order to receive a 10 billion euro ($13 billion) bailout loan, Cyprus had to raise the remaining 13 billion euros ($17 billion). To do that, it had break up its second-largest bank, Laiki, and impose heavy losses on depositors with over 100,000 euros sitting in it and the largest lender, the Bank of Cyprus.

Further sapping trust in Cyprus' banking system are the strict restrictions on money withdrawals and transfers that were imposed to prevent a run.

Cyprus' president, finance minister and central bank governor met with European Central Bank President Mario Draghi Wednesday with the aim getting the country's banking system moving again.

Analysts warn an economic rebound won't happen until the country has a healthy banking sector doing what it's supposed to be doing â¿¿ loaning people money to start businesses, buy homes and invest.

Here is a look at how Cyprus is trying to deal with its biggest problems:

BANKING AND CAPITAL CONTROLS

On top the agenda at the meeting with Draghi were the problems at the country's largest lender, the Bank of Cyprus. The country's president, Nicos Anastasiades, last month warned the country's international creditors that bank's cash reserves were running dangerously low.

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