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On the verge of a rescue package
AFTER drawn-out talks here in Nicosia the government and foreign lenders are on the verge of striking a deal for a state bailout, reports said last night.
Reuters cited EU sources saying the agreement was nearly done but would be completed only today when inspectors from the European Commission, European Central Bank and International Monetary Fund – collectively known as the troika - are likely to give their approval.
Two EU officials told the news agency the Cypriot side had presented a final, detailed proposal including figures and that the troika would examine it on Friday.
“We are very close, but there's no deal yet,” one official told Reuters on condition of anonymity. “We will have more discussions on Friday and if all goes well we will be able to finalise an agreement then.”
Local media reported on the broad strokes of the deal. After intensive negotiations on Wednesday night and throughout yesterday, the two sides hammered out an agreement apparently bridging their differences on the major outstanding issues: pension reform, management of gas revenues, privatisation of certain semi-governmental organisations, and inflation-linked wage indexation.
The state broadcaster said that on natural gas, the troika had accepted the government’s position for a part of the proceeds to go toward paying off the debt, with the rest going into a special investment fund and a part used for energy infrastructures.
The troika apparently got satisfactory assurances that an amount would be set aside for servicing the national debt.
It was agreed also that the semi-governmental Cyprus Telecommunications Authority (CyTA) would not be privatised unless the national debt became unsustainable, reports said.
The Social Security Fund (SSF) would not be scrapped, and the government’s debt to the fund would not be written off; nor would the Cost of Living Allowance (CoLA) be abolished.
CyBC said CoLA would be slashed by 50 per cent once payment of it resumed in 2016. Thereafter it would be paid only once a year.
Meanwhile payment of 13th salaries to civil servants would continue.
Supervision of cooperative banks would be transferred from the Commerce Ministry to the Central Bank, reports said.
An agreement on the key issue of the bailout amount for the banks had yet to be “locked in.”
The economic adjustment programme would amount to €1.1 billion, compared to the troika’s €1.2 billion and the government’s €975 million.
Central Bank governor Panicos Demetriades was said to be instrumental in persuading President Christofias to take the deal.
The two spoke on the phone yesterday morning; the top banker reportedly advised Christofias that failing to secure an EU/IMF loan now would sink the banking sector.
There were signs a deal could be in the air when earlier in the day Christofias said Cyprus was very close to a bailout agreement with international lenders whose delegation left the island yesterday after the latest round of talks.
“After tough negotiations with the troika, and considering the difficult conditions our country is going through, we are very close in signing the memorandum with the troika,” Christofias said in a written statement from Brussels where he is attending the EU leaders summit.
The statement followed talks with the troika on Wednesday night on the thorny issues of natural gas revenues, wage indexation and privatisations.
“We are on track and very soon we expect to have the final arrangement,” Finance Minister Vassos Shiarly said. “When the president says we are close, it means we are close.”
Assuming that Cyprus has a deal in place, it could be discussed by the Eurogroup on December 3.
It does not mean however that it would be approved immediately by the Eurogroup.
After that it would also need approval by parliaments of certain eurozone countries before the first tranche of financial assistance was released, Shiarly said.
Main opposition DISY leader Nicos Anastasiades was poised yesterday to publish the letters he sent Christofias more or less warning him that he will be held responsible if nothing was done to reverse the course of the economy.
But following the president’s statement, Anastasiades said he will avoid critique “and any reference to the consequences and risks faced by the country.”
“We are watching the developments with concern and I sincerely hope our country avoids the worst through a mutually accepted conclusion,” he said.
Speaking on state radio yesterday morning, Anastasiades gave a hint of the contents of his letter to the president.
“Gross negligence is a crime too,” he said.
Christofias’ comment from Brussels followed a tense Wednesday meeting with party leaders who were briefed on the progress of the negotiations with the lenders.
Reports suggested Christofias appeared not to know the potential amount of the island’s bailout.
When he heard that the figure could reach €17.5 billion, the president reportedly slammed his hand on the table, asking how the amount became so high.
Yesterday, Shiarly played down the affair, saying it was amazing how a simple statement created so much fuss.
“These figures have been discussed repeatedly,” the minister, said.
Cyprus bailout is made up of two parts – bank recapitalisation and refinancing the state’s current obligations, €6 billion, which covers the period up to 2016.
The rest, €1.5 billion, will be used to finance the fiscal deficits.
“Consequently, this amount reaches around €17 billion,” Shiarly said. He added however that the €10 billion needed by the banks was not a figure mooted by the government.
That amount is expected to be determined by an audit of the banks’ loans portfolios whose preliminary findings will be issued early in December.
“I am surprised… that such a small misunderstanding in the calculation of the amount could have created such an upheaval,” the minister said.