Cyprus 'very close' to signing bailout deal

AP News
Posted: Nov 22, 2012 1:53 PM

NICOSIA, Cyprus (AP) — Cyprus is "very close" to signing an agreement with potential creditors for a bailout to support its troubled banks and pay its bills, the crisis-hit country's president said Thursday.

President Dimitris Christofias said that the "very limited" number of differences that remain could be bridged "very soon."

The statement comes a day after Cypriot officials wrapped up a third round of negotiations with officials from the European Commission, the European Central Bank and the International Monetary Fund, collectively known as the troika.

"Following tough negotiations with the troika and always bearing in mind the difficult situation that our country now finds itself in, we are very close to signing a memorandum with the troika," Christofias, who is in Brussels for a European Union budget summit, said in a written statement.

Christofias didn't specify which issues remain unresolved, but Cypriot officials, speaking anonymously because of the sensitivity of the negotiations, said they include how proceeds from offshore natural gas finds are managed, the privatization of profitable, state-owned companies and the state's contribution to workers' pension fund.

The statement was greeted with guarded relief in the country which was hit on Wednesday by another two-notch credit rating cut. Ratings agency Fitch sank Cyprus deeper into junk status amid worries over a weakening economy that the Cypriot finance ministry projected will shrink by 3.5 percent next year.

However, German Finance Minister Wolfgang Schaeuble has repeatedly said that he does not expect a deal with Cyprus to be finalized before early next year.

"Cyprus is negotiating with the troika which must compile a report at the end of its consultations. That's what we wait for. It will be evaluated when it's there," a finance ministry spokesman said Thursday.

Once the full troika report will be available, Germany's Parliament will also have to vote on the bailout deal. With only four weeks left before its Christmas recess, it is likely the vote might be scheduled for the new year.

Cyprus asked for international aid in June to prop up its banking sector — which has total assets with an estimated value of eight times the size of the country's €17.5 billion ($22.4 billion) economy — that took huge losses on bad Greek debt and loans.

The overall size of the bailout is estimated to hover between €13-17.5 billion ($16.6-22.4 billion) depending on the exact amount that the banks will need to recover. Finance Minister Vassos Shiarly said that amount won't be known before consultancy firm PIMCO and auditors Deloitte which are currently pouring through the banks' books, come up with a preliminary figure early next month.

Shiarly said apart from the banks' needs, the bailout will include €6 billion ($7.7 billion) to refinance the country's debt and another €1.5 billion ($1.9 billion) to cover fiscal deficits over the bailout's four-year implementation period up to and including 2016.

He said if a bailout agreement is signed in the next few days, it could be discussed by ministers from countries that use the euro when they meet on Dec. 3. A first bailout installment could be paid out six weeks after that once the deal clinches parliamentary approval from Cyprus' eurozone partners, said Shiarly.

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Cyprus has been unable to borrow from international markets for over a year and faces a year-end cash crunch, but Shiarly said the government is working to ensure that all salaries will be paid.

Shiarly submitted the country's 2013 budget to parliament Thursday, which he said incorporated provisions that have already been negotiated with the troika.

" Negotiations with the troika are continuing and it's possible that there could be additional amendments so that the final picture of the budget for 2013 may be slightly different than what we now have in front of us," Shiarly said.

The Cyprus finance ministry said those provisions include steep cuts to public sector salaries, downsizing the government workforce through a hiring freeze, raising the retirement age to 65 and a raft of tax hikes.

Shiarly said the 2013 budget projects a fiscal deficit of around 4.4 percent of GDP. According to the finance ministry, the country's debt will jump from 85.8 percent of GDP this year to 92 percent in 2013, peaking a year later at 95.6 before starting to recede.

Unemployment is forecast to rise to from 12 percent this year to 13.8 percent next. It will increase to 14.2 percent in 2014 and retreat to 13 percent the following year.