imbalances had built up – notably persistent current account deficits, significant losses in competitiveness, rising fiscal deficits and public debt. all this left cyprus in a weak position to tackle the problems of its banking sector. and these problems appeared to be daunting – especially compared to the small size of the the rate for term deposits from households and non - financial corporations as of march 2013 was 4. 4 % in cyprus and 2, 5 % in the euro area. bis central bankers ’ speeches economy. the two largest banks, which account for half of the domestic banking sector, had prospective capital needs of close to eur 8 billion – or 44 % of gdp. this is what the independent due diligence exercise revealed in february 2013. if the sovereign had shouldered these massive recapitalisation needs, debt would have risen to 145 % of gdp. this would have critically endangered public debt sustainability. at the same time, traditional ways of burden sharing by the private sector bank creditors were limited, given little junior debt outstanding in banks. all this made the situation in cyprus highly challenging and exceptional. one needs to bear in mind the starting conditions when assessing the design of the eu / imf programme, to which i will now turn. key elements of the eu / imf programme three key objectives guided the negotiations of the mou : first, to reduce the risks posed by the financial sector ; second, to preserve debt sustainability ; and third, to restore the conditions for sustainable and balanced growth. combining these three objectives has proved to be a challenge, to say the least. not only did the programme have to strike the right balance between short - term financial stability concerns and long - term debt sustainability considerations. it also had to be framed within a political context which requires unanimous decisions in the eurogroup and esm decision making bodies. due to these exceptional economic and political circumstances, programme negotiations dragged on for too long, and the situation of the banking sector became critical. this forced the ecb to act. the provision of emergency liquidity assistance ( ela ) by the national central bank is aimed at supporting solvent banks facing liquidity problems. without a credible recapitalisation perspective, the two largest and weakest cypriot banks could not have been considered solvent any longer. further providing ela to these banks would not have been in line with the rules of the eurosystem and, ultimately, with the treaty provisions. therefore, the ecb decided on 21 march that ela would

cabinets and periodic elections both at the centre and several states. it is remarkable that political cycles have not hindered the progress of well - calibrated economic reforms. as michael mandelbaum, a democracy expert at johns hopkins university in washington said : “ there ’ s a lot of turmoil on the surface of indian democracy, but there ’ s a lot of consensus deep down in the political system. ” in fact the political system should lend comfort to the global businesses in view of elements of longterm predictability. ambassador yasukuki enoki, japanese ambassador to india is reported to have said : “ for the next two decades, indian society is predictable and democratic framework is predictable. ” as regards macro - economy, there is an increasing consensus that india has crossed the threshold of reform, leading the economy to become really market - oriented and price based economy. this orientation has helped the country emerging as the major service - outsourcing hub for the world. moreover, acceleration in growth is expected to be sustained in view of the evolving pattern of domestic demand. for example, national council of applied economic research ( ncaer ) mish data “ clearly indicates that india is growing immensely wealthy. by the end of this decade, the structure of the country ’ s demographics will change from an inverted pyramid, signifying a small rich class and a very large low - income class, to a rudimentary diamond, where a significant part of the low - income class moves up to become part of the middle class. ” further, there may be demographic bonus between 2010 and 2040 when india ’ s working population is still increasing while population in the rest of asia may be levelling off or even declining. moreover, public and private sector compete and co - exist in a dynamic balance which is imparting competitive strength to the economy. finally, in terms of business environment, the impressive growth coupled with market orientation of the economy has been a bottoms - up exercise, with a very broad - based growing entrepreneurial class. the capacity to innovate is considered high and costs of innovation are reportedly low in india. for example, engineering - intensive service - led manufacturing is sought to balance the advantages of standardised way of mass production of goods. reportedly, there is an increasing emphasis on service approach to manufacturing with adaptation of techniques such as lean production to keep quality high and boost efficiency. these tendencies are perhaps reflective of a penchant for innovation 5 / 7 among growing entrepreneurial class in india