Cyprus | Posted:

Cyprus's financial crisis is barely perceptible from the beach in this resort city on the sunny southern coast, where foreign tourists stroll along the shore relatively unscathed by the nation's troubles.

But under the surface tranquillity, many Cypriots fret that the nation's crisis will not only imperil its ability to draw foreign depositors and businesses, but could also deal a blow to another pillar of the economy: foreign tourism.

Direct revenue from tourism accounts for about 10% of the island's gross domestic product, according to government estimates; the industry says the indirect contribution is far larger. Last year, Cyprus welcomed nearly 2.5 million visitors from abroad, roughly twice the island's population.

Any drop in the number of bookings during the busy summer season could compound the nation's troubles, with some economists already predicting a double-digit hit to Cyprus's economy this year because of fallout from the banking crisis.

There are early signs that some tourists are having second thoughts. Nicholas Aristou, executive director of the Four Seasons Hotel in Limassol, says the pace of bookings from the U.K.—which account for nearly one million of the total visitors to Cyprus—has fallen in recent days as some would-be travelers have shown "hesitancy" about visiting the island. Officials at the Association of British Travel Agents say they expect bookings to suffer amid the negative publicity Cyprus has received in the past two weeks.

Mr. Aristou said he expects those bookings to pick up again now that Cyprus has reached a bailout deal with its euro-zone peers and the International Monetary Fund. "We're still expecting a strong summer season ahead," said Mr. Aristou. "Tourism as an industry will have to play a major role in helping us overcome this crisis."

Mr. Aristou said his hotel has seen no drop in business in recent days, and is benefiting from a rise in Russian tourism. For many of those visitors, the nation's crisis remains an abstraction.

"We have very much snow in Moscow," said Dmitry Vlasov, a 34-year-old video producer who came to Cyprus to celebrate his birthday with his girlfriend in warmer environs. The pair walked along the water in hotel bathrobes on a recent day, alternating between dips in the sea and trips to the sauna at a nearby luxury hotel.

Whether the tourists keep coming will depend largely on what happens in the next few weeks. As part of its €10 billion ($13 billion) bailout, and as Cyprus struggles to save its banking system, the country has imposed capital controls for at least a week that will include caps on credit-card transactions, and limits to €1,000 the amount of cash travelers can take out of the country.

Yiorgos Lakkotrypis, Cyprus's minister of energy, commerce, industry and tourism, said Thursday that he expects an "exceptional touristic year," adding that Cypriots' calm during the bank reopenings that day proved "there is no irresponsible behavior" that would scare away visitors.

Some tourists may see the nation's financial crisis as a chance to find bargains, say tourism operators. In neighboring Greece, the country's financial crisis first frightened—then drew—travelers from abroad.

"As we saw with Greece last year, many people will see the financial crisis as a good opportunity to visit," said Gillian Edwards, a spokeswoman for the British travel-agent group. "There was a flurry of last-minute bookings to Greece towards the end of summer 2012 as consumers recognized they could get good value breaks, and that prices in bars and restaurants had come down due to the economic difficulties."

So far, a local hoteliers' association says, there have been no cancellations because of the bank closures. Instead, the group says, tourists have adjusted to the bank holiday and daily withdrawal limits at ATMs by arriving with euros brought from home. Credit cards are still widely accepted at hotels.

On a stroll in the narrow streets of Limassol's old town, Andrea Lewalter, a 45-year-old physical therapist from Frankfurt, and her husband said they had considered canceling the family's two-week vacation. They were particularly concerned about anti-German sentiment in Cyprus, with many Cypriots blaming the German government for dictating the harsh terms of its bailout.

If the hadn't planned the vacation far in advance, they might not have come, they said, but they arrived fortified with extra cash and credit cards, and have had no trouble. Now they will have to convince friends back home that the island is worth a visit.

"When I told them I was going to Cyprus, my friends laughed at me," said Mrs. Lewalter. She says the family brought extra euros just "in case."

SOURCE: The Wall Street Journal