Will The IMF’s Solution For Cyprus Include Tax Hikes?

IMF LagardeChristine Lagarde, managing director of the International Monetary Fund, issued a statement on Wednesday revealing that the IMF reached a staff-level agreement to contribute 1 billion euros ($1.3 billion) to Cyprus’s bailout program.

The rescue package for Cyprus was constructed jointly by the Troika — a coalition consisting of the IMF, the European Commission, and the European Central Bank effectively tasked with ensuring euro zone economic stability. As Lagarde described it: “A combined financing package of 10 billion euros (about US $13 billion) is designed to help Cyprus cover its financing needs, including debt obligations, while it implements the policies needed to restore the health of the economy and regain access to capital market financing.”

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In her statement, Lagarde highlights three policy steps that Cyprus has taken that the bailout program builds off of. The first is addressing the problems that grew rampant and the nation’s largest banks in a way that protects insured depositors, or more than 95 percent of total account holders in the two affected banks.

The second is what Lagarde describes as “substantial fiscal consolidation measures” that were introduced in this year’s budget and will stretch through 2015. The third is “a significant reform of the public wage indexation mechanism as well as important steps to improve the pension system’s long-term viability”…