Cyprus: Bailout deal may take longer than expected

AP News
Posted: Nov 08, 2012 1:27 PM

NICOSIA, Cyprus (AP) — Cyprus is unlikely to sign a bailout deal during the upcoming visit by officials from potential creditors, a senior Cypriot official said Thursday.

The official, who spoke only on condition of anonymity because of the sensitivity of the negotiations, said he didn't think an agreement would be signed during the talks, starting Friday, between the Cypriot government and a team from the European Commission, the European Central Bank and the International Monetary Fund.

Asked if a deal was expected at the end of talks with negotiators from the three organizations, collectively known as the troika, the official said "no." The official said an agreement may come when they return for another round of talks at a later date that hasn't been scheduled yet.

The Cypriot finance ministry said in a statement Thursday that the talks with the troika officials will aim to find broad agreement on "structural matters, the macroeconomic framework as well as issues related to Cyprus' financial sector."

Cyprus sought financial aid in June to support its banks that lost billions on bad Greek debt and loans. It also needs the cash to meet its payments as it has been unable to borrow from international markets since the middle of 2011. The country had been getting by on a €2.5 billion ($3.18 billion), low-interest loan from Russia, but that has been used up. Moscow still hasn't replied to another Cypriot loan request for an additional €5 billion.

Cypriot officials say they have enough cash on hand to see the country through until the end of the year, but want a bailout deal as soon as possible. Although the Cypriot finance ministry held out hope for an agreement this month, Finance Minister Vassos Shiarly said last week that he's confident an agreement will be in place before the year is out.

Shiarly has said the government has essentially met a troika condition for shaving around €1 billion ($1.27 billion) from the bloated public sector and generating revenue from tax hikes over three years, but is reluctant to go ahead with privatizing profitable, state-owned companies, putting cooperative banks under centralized supervision and entirely doing away with inflation-indexed pay rises.

The main hurdle to a deal is how much money the Cypriot banking sector — which has assets worth eight times the size of the country's €18 billion economy — will need to recover. The Cypriot government says it'll need somewhere around €6 billion, while troika officials estimate it will be at least twice that.