Cyprus gives warning of going insolventSouce:Xinhua Publish By Thomas Whittle Updated 18/12/2012 6:54 am in World / 1 comment
NICOSIA, Dec. 17 — Cyprus Finance Ministry gave a warning on Monday that the government will go insolvent within two or three days unless it can urgently raise money through loans by public utility corporations.
Finance Ministry Director General Christos Patsalides told the parliamentary finance committee that the government will enter into a state of selective default unless semi-governmental corporations agree to urgently lend money.
“We have run out all other alternative options to raise money,” Patsalides said.
The finance committee was told that the first installment out of loans requested from the European Stability Mechanism and the International Monetary Fund will not be available until late March or even early April.
The government has submitted a request to Cyprus Telecommunications Authority (CYTA), the Electricity Authority (EAC) and the Port Authority to urgently lend money to the government totaling 250 million euros to meet salary and other needs over the next two months.
CYTA and EAC agreed to make a loan of 100 million euros each out of their employees pension fund.
However, trade unions representing the majority of employees strongly objected to the loans expressing concern that the government will not be able to repay its debt.
Cyprus has applied for bailout from the European Union and the International Monetary Fund after its two major banks had asked for state support after losing several billion euros on account of their exposure to the write down Greek bonds.
An initial amount of 17.5 billion euros in loans by the European Stability Mechanism and the International Monetary Fund was agreed upon in a bailout memorandum — 10 billion euros to go for bank recapitalization and 7.5 billion to finance budget deficits and refinance maturing loans until the end of 2015.
However, there is delay in concluding the bailout deal in anticipation of a bank audit report to decide the exact amount of recapitalization. This is expected to be released by the middle of January.
Cyprus hopes that the bailout deal may be finally endorsed by a Eurogroup meeting on January 21.
However further obstacles have to be overcome, as the International Monetary Fund is also reported to be in disagreement with the Eurogroup over the manageability of the Cyprus debt.
The IMF insists that too large a recapitalization amount will raise the debt to an unsustainable level and is reported to have given a warning that in such a case it will not be able to participate in the Cyprus bailout.