THE NEW government of President Anastasiades entered office having to deal with a potential financial collapse and a myriad of interconnected problems associated with Cyprus’s sovereign debt, solvency, GDP, a new economic model and competitiveness.

During crisis management mode, saving the ‘patient’ from imminent death has naturally been the first priority. However, disaster recovery and business continuity usually need to start even while a crisis is still bubbling and there have been encouraging signs of this.

There is little evidence that this government is trying to prevaricate or avoid tough decisions and actions by blaming external imposition of suffocating timetables or unbearable terms and conditions. Thus far, this does appear to be a ‘can do, will do’ regime.

The question is: will the President persevere and carry through the essential and, in some cases, radical changes that are needed for the country’s recovery and long-term sustainability?

Many of these changes involve the elimination of systemic cancers within the body politic, the public sector, the legal profession and particular sectors of the economy.

For example, will President Anastasiades be the long-awaited saviour who will clean up corruption? Will he be the one to finally clean up the Cyprus Property Scandal?

Put Corruption Back in its Box

It was gratifying to note that soon after taking up office the President announced his intention to require every public employee to sign up to a personal commitment to honesty, integrity and transparency in their conduct. Presumably this will make it easier to dismiss public employees who fail to honour that commitment.

Even while the bail-out and bail-in furore was raging during March, his officials announced that meritocracy based on objective performance criteria would be introduced into the evaluation of all public sector employees. Further, the recruitment and selection of public employees would be based solely on objective criteria and appointments based on political, family, gumbaros or other corrupt rusfeti relationships would be banished.

The above initiative would be a major step forward in eradicating the all-enveloping ‘corruption of the spirit’ so evident throughout the public sector.

Polis Polyviou described this corrupted spirit so vividly in his official 2011 report on the Mari disaster.  To avoid other disasters in Cyprus (and not just those involving major hazards; was he being prescient about the potential bankruptcy of the government and banks, perhaps?), Polyviou advocated a compelling need to effect radical change in society, government and institutional life away from nepotism, clientism and corrupt patronage. This would necessarily include:

• Transparency throughout government and the public sector and in its dealings with the public. Lack of transparency is high on the UNCAC and GRECO lists of corruption indicators.

• Depoliticization of professional activity, of public sector staffing and of selection processes and criteria. Cyprus needs to dump its 1960 world-view of normalcy and efficacy determined by tribe, political party, nepotism and rusfeti.

• A determined anti-corruption programme along the lines of an Independent Commission Against Corruption (ICAC), which Polyviou advocated specifically. An ICAC, such as that long-established in Hong Kong and elsewhere, would have the mandate to investigate allegations of corruption made by any person (not just the police or the Attorney General) and prosecute individuals where appropriate.

• Tackling corruption on a broad basis, so that it includes corrupt practices between companies or individuals which are against the public interest and not just those practices which involve public officials.

• Recognition that all forms and levels of corruption must be eradicated: petty, grand, sovereign and spirit.

An early start has been made already on this task list. It has yet to be decided whether an ICAC will be set up but, if and when it is, where would it begin?

Normally, the police force has to be examined first, and cleansed if necessary, as it is essential for law enforcement itself to be devoid of corruption. This would also have to extend to the office of the Attorney General, the judiciary, the Bar Association and its members and the Disciplinary Board in view of their close connections with the administration of justice and the obvious potential for corruption.

With an effective ICAC, corrupt individuals who are prosecuted should expect to do jail time. The ICAC in Hong Kong, for example, has a long ‘scalp list’ of senior government officials and very powerful business people who have gone to jail for lengthy periods. A senior Hong Kong lawyer, who previously had been Attorney General in another country, was jailed for perverting the course of justice.

There is no ICAC in the UK but nonetheless there too politicians, senior officials and big business leaders have been jailed for bribery and other forms of corruption.

Will President Anastasiades have the backbone and fortitude to drive through his fledgling anti-corruption programme to completion in Cyprus?

Cyprus Property Scandal is Still Live

In January 2007, in a Risk Watch article entitled ‘Who Will Clean the Augean Stable?’ I suggested that  it was then already ‘far too late for the government, the developers and the rest to put a convincing PR gloss on the colossal mess they have created for Cyprus’ in relation to the scandal of withheld title deeds and property fraud.

Collectively, I referred to the perpetrators as ‘white collar gangsters’. Very little of substance was done by the previous government to rectify the state of affairs. Indeed, ministers and their officials kept asserting that the scandal was a myth and the product of evil external forces and the international media.

When such a ludicrous position became unsustainable, they admitted there was a problem with non-issuance of title deeds and resorted to a plan in 2010 to clear the backlog of 130,000 non-issued deeds.

Unfortunately, the plan had barely scratched the surface of the backlog by the end of 2012. Moreover, by then Cyprus was heading for bankruptcy and had been forced in June 2012 to apply for an EU bailout.

The Troika (EU, ECB and IMF) which evaluated Cyprus’s debt position noted, in its memorandum to the Cyprus government of the required actions, that while exposure to Greece’s debt problems had been instrumental in the crisis for Cyprus banks, many of the latter’s problems were home grown and related to over-expansion in the property sector as a consequence of the banks’ poor risk management.

Further, the memorandum required the government by end of quarter 4 of 2014 to ‘eliminate the title deeds issuance backlog to less than 2,000 cases’ that remained pending for more than 1 year.

While the Land Registry offices may be able to become more efficient to achieve this issuance target, it is quite another proposition to transfer those deeds issued to developers to their rightful owners – the buyers who have already paid for the property in full. Non-discharged developer mortgages as well as the developer’s unpaid taxes are a real stumbling block to transfer that many buyers are facing.

The Inland Revenue appears to be supine in forcing developers to pay their outstanding taxes, while the banks seem terrified of getting developers to service their loan and mortgage debts.

Under the eagle eye of the Troika technocrats, the banks, who for years have had a lax lending policy towards developers, will now have to take action on developer Non-Performing Loans.

If developers are unable to service their loans or discharge their debts, the prospect of developer bankruptcies followed by ‘fire sale’ disposal of repossessed properties looms much larger. But, in this economic climate and a flat property market, will there be new buyers even for apparent bargains? And, what about all those existing buyers, mainly foreigners who have paid in full and never been a party to the developer’s mortgages but nonetheless find themselves the victims of attempted bank liquidation, as in the Liasides collapse and other cases?

Effective government intervention in this matter is not only urgently needed but failure to render it would amount to complicity in what has been described as sovereign corruption. This is an early test of President Anastasiades’ commitment to clean up Cyprus. How could he achieve a rapid clean-up of the title deeds mess?

One obvious major action would be the establishment of a ‘bad bank’ specifically for developer debts, along the lines of the already successful National Asset Management Authority (NAMA) set up in Ireland in response to its EU bailout problems. This would prevent developers going bankrupt while protecting the interests of property buyers and the state’s finances.

Such a proposal was put (by CPAG) to a previous Finance Minister Mr Sarris several years ago, as well as other influential parties since then, but ignored. Will President Anastasiades and his new Finance Minister Mr Georgiades act decisively on this now to prevent the total destruction of the property sector?

©2013 Alan Waring

First published in the Financial Mirror