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IMF releases first bailout funds for Cyprus

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(WASHINGTON) - The International Monetary Fund on Wednesday approved a $1.33 billion (1.0 billion euro) bailout loan for Cyprus and released the first $110.7 million to the Cypriot government.

The loan is part of a combined $13 billion (10 billion euro) emergency financing deal set by the IMF and the European Stability Mechanism that aims to support the government as it seeks to stabilize the ravaged Cypriot banking sector.

"It is intended to stabilize the country's financial system, achieve fiscal sustainability, and support the recovery of economic activity to preserve the welfare of the population," the IMF said in a brief statement.

The announcement came two days after the ESM, the European Union's new financial stability backstop, handed over the first two billion euros of loans agreed under the controversial Cyprus aid deal.

The deal was set in March after the Cypriot government agreed to force depositors and bondholders in Cyprus's leading banks to take huge losses in order to keep the country's banking system from imploding.

The release of the funds came as official data released earlier Wednesday showed Cyprus's economy contracted by 1.3 percent in the first quarter from the previous quarter, and 4.3 percent year-on-year.

It was the seventh successive quarter in which the Mediterranean island's economy has been in negative territory.

Construction, manufacturing, electricity, transport, trade, tourism and services all declined from January to March.

According to the IMF, the European Commission and the European Central Bank -- the troika of international lenders who set the bailout program -- the Cypriot economy is expected to contract 8.7 percent this year and 3.9 percent in 2014.


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