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The Cypriot government’s need for emergency aid stems from the need to refinance debt rather than to fill budget holes, Finance Minister Vassos Shiarly said.
“All we want is refinancing of existing, short-term Treasury bills,” Shiarly told reporters today in the capital Nicosia. “We do not need any additional funding for 2012.”
Cyprus, which last month became the fifth euro-area nation to request a financial rescue since a 2010 bailout of Greece, is also negotiating a loan of 5 billion euros ($6.2 billion) from Russia, Russian Finance Minister Anton Siluanov told reporters in Moscow today.
No amount has been specified for the Cypriot bailout, which will encompass banks weakened by their exposure to the Greek economy as well as the public sector. Cypriot President Demetris Christofias said on June 29 that the requested aid will be mainly for banks.
The Cypriot government renewed 200 million euros in maturing debt yesterday. Cyprus may need to refinance as much as 341 million euros by Aug. 15, according to the debt agency. Daily newspaper Politis reported today that the Finance Ministry asked state-owned organizations, including the Cyprus Telecommunications Authority and Cyprus Ports Authority, to participate in a planned sale of 250 million euros of debt.
Shiarly said the recapitalization needs of Cypriot lenders, which lost more than 4 billion euros in Greece’s debt restructuring earlier this year, have weakened government finances also stretched by a 1.8 billion-euro rescue of Cyprus Popular Bank Pcl.
“They are bound to affect, to some extent, the fiscal side as well,” he said. “Liquidity is a problem.”
Fitch Ratings Co. cut Cyprus on June 25 to below investment grade, saying Cypriot banks need “substantial injections of capital in order to secure confidence in their financial viability.”
The European Central Bank said the next day that Cypriot government bonds had become ineligible as collateral in refinancing operations as their rating no longer met minimum creditworthiness standards. Following the Fitch downgrade, Cypriot debt is rated junk by all three major rating companies.
Cyprus, shut out of international bond markets for the past 14 months, has sought to narrow the budget deficit to 2.5 percent of gross domestic product this year from 6.3 percent of GDP in 2011. The Cypriot economy has slipped into recession after expanding 0.5 percent in 2011.
“I welcome the efforts made so far by the Cypriot authorities to correct the excessive budget deficit,” European Commission President Jose Barroso said today in Nicosia. “I am fully aware that consolidation is going on during a recession.”
In addition to a financial rescue from the euro area, Cyprus has requested aid from the International Monetary Fund and further funding from Russia following a 2.5 billion-euro Russian loan last December.
Representatives of the commission, ECB and IMF have just completed a “fact-finding” mission in Cyprus linked to its need for a rescue, according to Barroso.
“They’ll come back soon for a more detailed mission with the aim of preparing a program for Cyprus together with the Cypriot authorities,” he said.
Christofias said his government won’t let the commission, ECB and IMF -- known as the troika -- dictate the terms of aid, which is generally provided in return for budget austerity.
“We are now in talks with the troika and it doesn’t mean that whatever the troika will say we shall agree,” he told reporters alongside Barroso. “We too have our views.”
Barroso was in Nicosia to mark the start of the Cypriot presidency of the European Union that will run for six months through December. The commission is the 27-nation European Union’s executive arm.
To contact the reporters on this story: Jonathan Stearns in Nicosia, Cyprus, at firstname.lastname@example.org; Stelios Orphanides in Nicosia at email@example.com
To contact the editor responsible for this story: James Hertling at firstname.lastname@example.org