US, South Korea extend nuclear agreement for 2 years

The U.S. and South Korea are extending for two years their current civilian nuclear agreement and postponing a contentious decision on whether Seoul will be allowed to reprocess spent fuel as it seeks to expand its atomic energy industry.

Wednesday's announcement is a setback to South Korea's new leader, Park Geun-hye, who had made revision of the 39-year-old treaty one of her top election pledges, but it alleviates a potential disagreement between the allies when Park visits Washington in two weeks to meet with President Obama.

State Department spokesman Patrick Ventrell said the extension will provide more time for the two governments to complete the complex negotiations on a successor agreement that will recommence in June.

"These are very technical talks, and both parties felt that we needed more time," he told reporters.

South Korea is the world's fifth-largest nuclear energy producer and is planning to expand domestic use of nuclear power and exports of nuclear reactors. But its radioactive waste storage is filling up, so it wants to be able to reprocess spent plutonium. It also wants to be able enrich uranium, a process that uranium must undergo to become a viable nuclear fuel. Currently, South Korea has to get countries such as the U.S. and France to do enrichment for it.

Revising the agreement is a sensitive matter as the same technologies can also be used to develop nuclear weapons. Washington has historically opposed allowing reprocessing and enrichment by its nuclear partners so as to prevent proliferation of the technology. The issue has added sensitivity on the divided Korean Peninsula because of North Korea's active pursuit of such weapons and international demands it desist.

Victor Cha at the Center for Strategic and International Studies think tank said the U.S. and South Korea had been deadlocked after two years of negotiations on a revised agreement and showing little inclination for compromise. Failure to extend the current agreement would have had a major impact on both the U.S. and South Korean nuclear industries, and would have been a blow to the Washington-Seoul alliance, he said.

"Punting the negotiations down the road for two years is advisable, benefits industry by creating some sense of predictability, and is politically neutral," Cha wrote in a commentary Wednesday.

The current agreement, last amended in 1974, expires in March 2014. Its renewal has to be submitted to Congress by this summer for approval.

South Korea is a staunch U.S. ally hosting American forces. The relationship was founded on strong security ties but expanded last year when a landmark free trade pact came into effect.

Park will visit the White House on May 7. She will also address a joint meeting of Congress.

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Cypriot leaders, creditors secure agreement, avoid bankruptcy

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  Mar. 24, 2013: Protesters hold a banner during an anti- bailout rally outside of European Union house in capital Nicosia, Cyprus.AP

BRUSSELS –  Cyprus secured a 10 billion euro ($13 billion) package of rescue loans in tense, last-ditch negotiations early Monday, saving the country from a banking system collapse and bankruptcy.

"We've put an end to the uncertainty that has affected Cyprus and the euro area over the past week," said Jeroen Dijsselbloem, who chairs the meetings of the 17-nation eurozone's finance ministers.

In return for the bailout, Cyprus must drastically shrink its outsized banking sector, cut its budget, implement structural reforms and privatize state assets, he said.

The cash-strapped Mediterranean island nation has been shut out of international markets for almost two years. It needs the bailout to recapitalize its ailing lenders and keep the government afloat. The European Central Bank had threatened to cut crucial emergency assistance to the country's banks by Tuesday without an agreement.

Without a deal by Monday night, the tiny Mediterranean island nation of about 1 million would have faced the prospect of bankruptcy, which could have forced it to become the first country to abandon the euro currency. That precedent would have roiled markets and spurred turmoil across the entire eurozone of 300 million people, analysts said, even though Cyprus only makes up less than 0.2 percent of the eurozone's 10 trillion euro economy.

The finance ministers accepted the plan reached in 10 hours of negotiations in Brussels between Cypriot officials and the so-called troika of creditors: the International Monetary Fund, the European Commission and the European Central Bank.

"We believe that this will form a lasting, durable and fully financed solution," said IMF chief Christine Lagarde.

Under the plan, Cyprus' second-largest bank, Laiki, will be restructured and holders of bank deposits of more than 100,000 euros will have to take losses, Dijsselbloem said, adding that it was not yet clear how severe the losses would be.

"This will have to be worked out in the coming weeks," he added, noting that it is expected to yield 4.2 billion euros overall. Analysts have estimated investors might lose up to 40 percent of their money.

Savers' deposits with all Cypriot banks of up to 100,000 euros will be guaranteed by the state in accordance with the EU's deposit insurance guarantee, Dijsselbloem said. Laiki will be dissolved immediately into a bad bank containing its uninsured deposits and toxic assets, with the guaranteed deposits being transferred to the nation's biggest lender, Bank of Cyprus.

Large deposits with Bank of Cyprus above the insured level will be frozen until it becomes clear whether or to what extent they will also be forced to take losses, the Eurogroup of finance ministers said in a statement.

Dijsselbloem defended the creditors' approach to make deposit holders take heavy losses, saying the measures "will be concentrated where the problems are, in the large banks."

The international creditors, led by the IMF, were seeking a fundamental restructuring of the outsized financial system, which is worth up to eight times the country's gross domestic product of about 18 billion euros. They said the country's business model of attracting foreign investors, among them many Russians, with low taxes and lax financial regulation has backfired and must be upended.

For Cyprus, the drastic shrinking of its financial sector, the loss of confidence with the recent turmoil and the upcoming austerity measures means that the country is facing tough times.

"The near future will be very difficult for the country and its people," acknowledged the EU Commission's top economic official Olli Rehn. "But (the measures) will be necessary for the Cypriot people to rebuild their economy on a new basis."

To secure a rescue loan package, Nicosia had to find ways to raise several billion euros so it could qualify for the 10 billion euro bailout package. The bulk of that money is now being raised by forcing losses on large deposit holders, with the remainder coming from tax increases and privatizations. The creditors had insisted that Cyprus couldn't receive more loans because that would make its debt burden unsustainably high.

A plan agreed to in marathon negotiations earlier this month called for a one-time levy on all bank depositors in Cypriot banks. But the proposal ignited fierce anger among Cypriots because it also targeted small savers. It failed to win a single vote in the Cypriot Parliament.

In an illustration of the depth of the fear of a banking collapse, Cyprus' central bank on Sunday imposed a daily withdrawal limit of 100 euros ($130) from ATMs of the country's two largest banks to prevent a bank run by depositors worried about their savings.

Cypriot banks have been closed this past week while officials worked on a rescue plan, and they are not due to reopen until Tuesday. Cash has been available through ATMs, but long lines formed and many machines have quickly run out of cash.

The Cypriot government also voted a set of laws over the past week to introduce capital controls, to avoid a huge depositor flight once its banks will reopen.

After the eurozone's finance ministers' approval, several national parliaments in eurozone countries such as Germany then must also approve the bailout deal, which might take another few weeks. EU officials said they expect the whole program to be approved by mid-April.

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