THE FINANCE Minister expressed fears yesterday that inflation on the island could get out of hand if it was not carefully regulated.
“As long as inflation remains at relatively low levels from 3.5 to five per cent, it is fairly easy to contain, however in the case that it goes beyond 6.5-7 per cent, there is a danger that a vicious circle would be created that would self-sustain the inflationary pressures on the economy,” Charilaos Stavrakis told reporters.
Stavrakis reiterated his belief that the economic situation in Cyprus was still “quite good” despite the major world-wide credit crunch. He also defended plans to import natural gas to the island through the state-controlled Electricity Authority, something that EU Competitions Commissioner Neelie Kroes said last week could create a monopoly on the island.
The Finance Minister yesterday expressed his confidence that “despite the economic slowdown being experienced internationally, the rate of financial growth would exceed 3.5 per cent, with estimates suggesting that the growth rate for the year would be at 3.7 per cent”, a figure which would be double the rate for other countries in the euro zone.
Stavrakis also declared his satisfaction over the state of unemployment in Cyprus, saying that “while other parts of Europe were suffering from rising unemployment, Cyprus continued to fulfil the conditions of full employment with the influx of foreign labour”.
In addition, he spoke about plans to use the government’s Social Insurance Fund (SIF) for the benefit of the taxpayer, with currently only some €100 million from the SIF gaining interest from banks.
“We have gradually to create real reserves of the SIF,” he said, adding that this was a suggestion by the World Bank.
Responding to comments made by the EU Competition Commissioner during her visit last week regarding the possible creation of a monopoly for the import of natural gas, Stavrakis said that the reason for the amendments in the Gas Liberalisation Law were made in order to avoid the creation of a monopoly.
It is believed that the law suspends the ability of the Cyprus Energy Regulatory Authority to issue licensing for private companies to trade in Liquefied natural gas (LNG) until an exclusive supplier was established on the island.
Parliament’s move would effectively create a buyer’s monopoly whereby only one company (DEFA – owned by the government and the EAC) would be entitled to buy LNG for the island’s needs.
Stavrakis, however, reported that this was not exactly the case.
“At this moment in time, the EAC has a dominant position in the market, and the small companies who wish to operate in the Cypriot market would not have the power to buy natural gas at attractive prices,” he said.
“With the creation of DEFA and the admission of new players in the company’s stock, we feel that competition is sustained to the greatest possible degree, as it would be possible for 10 per cent of DEFA’s stock to be brought by private companies who wish to operate in this sector.”
