Cypriot central bank governor Panicos Demetriades stepped down on Thursday amid controversy over both the terms of his resignation and his role in reaching arrangement with international lenders for a 10 billion euros (13.8 billion U.S. dollars) bailout.
Demetriades had a central role in agreeing crucial terms of the bailout assistance program agreed in March last year between Cyprus and its lenders -- the Eurogroup and the International Monetary Fund.
He is to be succeeded by former state auditor general Chrystalla Yiorkadji, who is to take up her duties on Friday, after being officially appointed by President Nicos Anastasiades.
Demetriades was appointed as central bank governor in May 2012 by the former left-wing Cypriot President Demetris Christofias, just a month before Cyprus applied for a bailout.
However, negotiations on the bailout terms were stalled until the end of the year 2012 and the deal was concluded by a new right-wing government which took office on March 1, 2013.
The delay proved catastrophic for the economy of the eastern Mediterranean island as it ended up on the brink of bankruptcy. When the bailout deal was concluded amid chaos, Cyprus' international lenders forced it to wind down a faltering bank and recapitalize its primary lender by using depositors' money.
Demetriades was accused of being responsible for high recapitalization amounts as he agreed to a high level of devaluation of immovable securities. No details were officially announced, but informed sources said the recapitalization needs were estimated on the assumption that immovable property values would drop by 30 percent.
In hindsight, Demetriades said in a recent interview that the Cyprus bailout amount was fixed by the International Monetary Fund on an erroneous assumption about the sustainability of the sovereign debt.
He said had the IMF not insisted on its position that a debt exceeding 100 percent of GDP could not be sustained, the world-first "bail-in" would not be necessary or would be more limited, leaving the banking system in a much healthier position.
He said that if the IMF accepted from the beginning a 120 percent benchmark for the debt, an additional 3.6 billion euros could have been added to the 10 billion euros bailout amount and the bail-in would apply to one bank only.
Demetriades was at loggerheads with President Anastasiades right from the beginning over his role in keeping alive a bank which was on the verge of bankruptcy out of purely political consideration and over his alleged delay in exiting Bank of Cyprus from its resolution status.
Demetriades announced his resignation one month ago quoting "personal and family reasons."
He is to return in May to his old post as an economics professor at the University of Leicester.