Cyprus eyes bailout to avoid defaulting on loans

04/01/2013

Cyprus narrowly avoided defaulting on public sector worker salaries and pensions after securing a short-term loan of 250 million euros from semi-public corporate bodies.

By Constantine Callaghan for Southeast European Times in Athens -- 04/01/13

photo

Cypriot President Dimitris Christofias said he would refuse any request by the Troika to add privatisation as part of the bailout deal. [AFP]

Cyprus is in the process of finalising an agreement to receive an international bailout from Troika comprised of the EU, the European Central Bank and the IMF.

Last week, Christos Patsalides, finance ministry secretary, warned that if "the state is unable to secure 250 to 300 million euros, than the country would proceed to default on payments," leaving civil servants' 12th and 13th salary payments for 2012 unpaid.

Cyprus remains, for at least the next year, excluded from international capital markets. According to Fiona Mullen, director of Nicosia based Sapienta Economics, "the government has been forced to use unorthodox means to meet its everyday expenses."

In turn, the finance ministry forged an agreement with the Cyprus Telecommunications Authority to borrow 100 million euros on condition that the Electricity Authority of Cyprus a lent the same amount.

A further 50 million euros was provided by the Cyprus Ports Authority. The telecommunications and electricity authorities agreed to a three-month loan with an interest rate of 5.5 percent, which is to be paid back once the government has received the first bailout tranche.

The details of the bailout are yet to be finalised and will be discussed at a Eurogroup meeting on January 21st. The needed amount is thought to be around 17 billion euros, equal to the republic's annual GDP.

Cypriot President Dimitris Christofias, with only two months left in office, has showed little appetite towards signing the bailout memorandum. On Wednesday (January 2nd), he said he would refuse any request by the Troika to add privatisation as part of the final bailout deal.

"I hope that when discussions conclude they won't ask us to privatise state-owned organisations because if they do, and I want to make this perfectly clear, I have no intention to proceed as president of the republic with such a move," Christofias told reporters.

Critics accuse him of trying to sidestep the issue in the last months of his presidency.

By stalling on the inevitable, Alexandros Apostolides, from the European University of Cyprus, told SETimes, "the current policy is a false-economy. As the state is borrowing unconventionally … the country's total debt becomes much greater than it needs to be."

Stelios Christodoulou, Democratic Labour Federation's Trade Union and Development secretary, told SETimes that the country's troubled economy has left "people angry."

"Angry with the government for mismanaging the economy, angry with banks and angry with the Troika. Only three years ago we were sending aid to Greece and in a few months it looks like we'll be the ones needing foreign help," he said.

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As the state continues to struggle with its ailing economy, current indications forecast an increasingly difficult period for the Mediterranean island.

On December 18th, the European Commission released its annual fiscal sustainability report which assessed Cyprus, together with Spain, to be at "high risk of fiscal stress in the short term."

With government debt running at 71.1 percent of GDP in 2011 and set to rise to 102.7 percent in 2014, the report advised the island "to implement long-term sustainability enhancing policies" and develop a competitive economy.

With elections due in February, one certainty is that navigating a way out of the island's economic troubles will be the greatest challenge facing the next government.

This content was commissioned for SETimes.com.
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