PARIS: The International Monetary Fund has agreed to provide approximately one billion euros to the 10bn euro rescue plan for cash-strapped Cyprus, managing director Christine Lagarde said on Wednesday.

This would be through a three-year 891 million Special Drawing Rights (about 1bn euro) loan,” Lagarde said in a statement, adding that she expects the deal to go to the IMF executive board for approval in early May.

The IMF, European Commission and ECB agreed with Cyprus on Tuesday the terms of a programme that will see the country drastically downsize its bloated banking sector and put state finances in order.

“The Cypriot authorities have put forward an ambitious, multi-year reform programme to address the economic challenges they face,” Lagarde said, describing it as “resolute.” “The overarching goals are to stabilise the financial system, achieve fiscal sustainability and support the recovery of economic activity to preserve the welfare of the population.”

As part of the deal, Cyprus agreed last week to shut down bankrupt Laiki (Popular) Bank, transferring its deposits under 100,000 euros to the country’s largest lender, Bank of Cyprus, which will be recapitalised.

Deposits over 100,000 euros at Bank of Cyprus will be subject to a still-undetermined haircut which could reach 60 per cent of their value. At the same time, the government imposed capital controls to prevent a run on banks.

Lagarde said efforts will now “focus on completing the financial sector recapitalisation process, gradually restoring normal financial flows and facilitating the restructuring of banks’ impaired loans.” Cyprus has also committed itself to raise taxes, rein in spending and carry out structural reforms in the public sector to put its public finances in order.

Lagarde said “this is a challenging programme that will require great efforts from the Cypriot population,” but that it “provides a durable and fully financed solution to the underlying problems facing Cyprus and provides a sustainable path toward a recovery.”—AFP