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Originally published March 21, 2013 at 8:51 PM | Page modified March 22, 2013 at 6:02 AM

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Cyprus rushes on bailout plan as clock ticks on bank closures

The European Central Bank said Cyprus would have until Monday to reach an agreement with the European Union and the International Monetary Fund if the government wanted its banks to continue to receive the low-interest loans that are essential to keep them afloat.

The New York Times

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NICOSIA, Cyprus — As the European Central Bank threatened to shut off crucial financing for banks in Cyprus without a rapid accord on an international bailout, members of Parliament put off a vote Thursday on another revamped formula. The vote was rescheduled for Friday.

In Cypriot streets, meanwhile, riot police clashed with protesters in front of Parliament as about 200 demonstrators gathered outside.

Police also scuffled with employees of Cyprus Popular Bank, second-largest in the country. The employees had turned out amid rumors the bank could be shut down within hours. The central bank issued a denial but warned that Cyprus Popular Bank risked an immediate default if the measure was not passed by Parliament.

Throughout the day and evening, people throughout the nation of about 1.1 million flocked to cash machines to withdraw as much money as possible, after the government said banks would remain closed until Tuesday.

Cyprus’ president, Nicos Anastasiades, presented Parliament with a plan that scrapped a controversial tax on bank deposits. Experts warned, however, that the deposit-tax plan might need to be revisited unless the government found another way to reach the target of $7.5 billion needed to satisfy international negotiators.

The central bank said the new package included “consolidation measures” to enable Cyprus Popular Bank, also known as Laiki Bank, to continue operating. As the country’s most troubled lender, it would be reorganized by placing underperforming loans and questionable assets into a “bad bank” and transferring healthy assets to the Bank of Cyprus, the nation’s largest financial institution.

The central bank warned that if Parliament failed to pass the measure, “Laiki will default immediately, causing major consequences to its employees and its clients.”

Lawmakers will also vote on restrictions on taking cash out of banks and out of the country, known as capital controls, when the banks reopen. The bill would limit cash withdrawals, prohibit or restrict check cashing and bar “premature” account closings and any other transaction that authorities deemed unwarranted.

The central bank said Thursday that Cyprus would have until Monday to reach an agreement with the European Union and the International Monetary Fund (IMF) if the government wanted its banks to continue to receive the low-interest loans that are essential to keep them afloat.

The plan sent to Parliament on Thursday proposed to nationalize pension funds from state-run companies and conduct an emergency bond sale to help raise the $7.5 billion the indebted country needs to secure a $13 billion bailout.

In Moscow, President Vladimir Putin discussed the Cyprus situation with the European Commission president, José Manuel Barroso.

Russian citizens and other Russian entities are estimated to have about $30 billion or more in Cyprus banks.

But the Russian government is also concerned about an even larger amount of money that typically flows through Cyprus, where many companies that operate in Russia maintain offshore affiliates. Cypriot banks have frozen all accounts in a financial crisis that risks tipping the country into default and sowing turmoil across the eurozone.

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