Cyprus reaches bailout deal
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NICOSIA, Nov 22 AFP
November 23 2012, 07:51AM
Eurozone member Cyprus has reached a hard-won bailout agreement with international lenders, state news agency CNA said.
A "positive conclusion to negotiations between the troika and the government came at around 8pm (0500 Friday AEDT)," a report said, hours after President Demetris Christofias said a deal was near on what the finance minister said would involve some 17 billion euros ($A21.21 billion).
CNA said central bank Governor Panicos Demetriades played a "key role" to ensure an agreement was reached.
State television said a formal announcement was expected later in the evening on the deal after marathon talks on deep spending cuts and reforms to save a teetering economy, but officials could not confirm when that would happen.
Christophias said earlier that, "after tough negotiations with the troika (of lenders), and keeping in mind the difficult circumstances this country is going through, we are very close to signing the memorandum with the troika".
The statement, the president's first on the matter since the latest talks began on November 9, appeared to dismiss criticism he was not ready to agree to harsh terms.
Christofias sought to allay fears that officials from the troika of the European Commission (EC), the European Central Bank (ECB)and the International Monetary Fund (IMF) would leave the island empty-handed after more than two weeks.
Finance Minister Vassos Shiarly confirmed that reform of index-linked salaries, privatising the telecommunications authority and managing revenues from a major natural gas find were the remaining sticking points.
"We are on a very good road, and very soon we expect to make the final arrangement. There are only a few issues left, which we expect to cover very soon," he told reporters in Nicosia.
He said the memorandum could be ready for Eurogroup approval at its scheduled December 3 meeting.
Until Thursday, no official figure had been given, but it was widely reported to total 17.5 billion euros ($A21.84 billion) - 10 billion euros ($A12.48 billion) for the banks, 6.0 billion euros ($A7.49 billion) for maturing state debt and 1.5 billion euros ($A1.87 billion) for public finances.
Shiarly said "the amount comes at around 17 billion euros. It's what we said in the past on the proviso the banks need 10 billion, which isn't our figure".
An independent audit of the banks' requirements is still underway, so the final figure for aid to the banks has not yet been announced.
The country's entire gross domestic product (GDP) in 2011 was only 17.97 billion euros.
According to figures submitted to parliament on Thursday alongside the 2013 budget, which will include some of the austerity measures agreed, the island's GDP is expected to shrink 2.4 pe rcent this year to 17.85 billion euros.
It is then expected to contract by 3.5 per cent in 2013 to 17.49 billion euros and by a further 1.3 per cent in 2014.
The fiscal deficit is projected at 4.4 per cent of GDP in 2013, down from 5.2 per cent this year, while unemployment is expected to hit a record 13.8 per cent in 2013 and 14.2 per cent in 2014.
The talks, which started in July, are the longest the troika has been involved in before agreeing terms, mainly because Cyprus is uneasy with the level of cuts and reforms.
Nicosia applied for a bailout in June after its biggest lenders, Cyprus Popular Bank and Bank of Cyprus, could not meet new capital reserve limits because of exposure to Greece.
A document leaked to the media shows the government apparently proposing tax hikes and fewer cutbacks over a longer period than proposed by the troika.
Cyprus reportedly hopes to cut the debt gap by about 975 million euros ($A1.22 billion) by the end of 2016 rather than the 1.2 billion euros ($A1.50 billion) in mostly public finance cuts by 2015, as sought by the troika.
The troika's proposal is 80 per cent through expenditure cuts and 20 per cent from tax hikes.
Cyprus has been unable to borrow on international markets since last year when credit rating agencies lowered its sovereign rating to junk status.
On Wednesday, Fitch downgraded debt issued by Cyprus by two notches, from "BB+" to "BB-" and said the outlook was negative, which means it could be cut further.