Cyprus 'very close' to signing bailout deal

November 22, 2012 5:34:34 AM PST
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, easing concerns over how the talks were faring that sapped confidence in the economy.

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. Finch sank Cyprus deeper into junk status amid worries over a weakening economy projected to shrink by over 2 percent of gross domestic product next 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 (euro) 18 billion ($23 billion) economy -- that took huge losses on bad Greek debt and loans.

The overall size of the bailout is estimated to hover between (euro) 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 (euro) 6 billion ($7.7 billion) to refinance the country's debt and another (euro) 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.

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.

Shiarly didn't say what those provisions are, but officials privately say they include steep cuts to public sector salaries and a raft of tax hikes.

The finance minister said the 2013 budget projects a fiscal deficit of around 4.4 percent of GDP.

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