Cyprus’s counter-proposal to the so-called troika outlining the government’s austerity plan as part of a bailout program may be dismissed by international lenders, the head of the Cypriot parliament’s finance committee said.
Cyprus on June 25 became the fifth country in the euro area to seek external aid. No amount was specified for the rescue, which will encompass the public sector as well as banks. Cyprus has also sought a 5 billion-euro ($6.5 billion) loan from Russia. Igor Shuvalov, a first deputy prime minister, said Sept. 8 that Russia may make a decision on the request within a month.
The Cabinet has approved an austerity plan for the troika that it’s discussing today with political parties, unions and business groups in the capital, Nicosia. The government proposes savings that total 1.02 billion euros in four years, whereas the troika seeks 975 million euros of cuts in three years.
“We’re concerned that troika officials will laugh at our proposal,” Nicholas Papadopoulos of the opposition DIKO party said on CyBC radio today. “The troika told us the public sector is our biggest problem and sought a program made up of 80 percent spending cuts and 20 percent taxes. The government countered with a one-to-one ratio of cuts and taxes.”
The government will seek an 11 billion-euro bailout, 62 percent of gross domestic product, to recapitalize its banks and pay its bills, according to three people with direct knowledge of the matter.
In today’s meeting, communist President Demetris Christofias is seeking political backing for the austerity plan before he resumes talks with the troika that oversees euro-area bailouts, comprised of officials from the International Monetary Fund, the European Central Bank and the European Commission.
The government plans to cut the public payroll by 247.3 million euros through the end of 2016. The plan also foresees an increase in pension contributions for civil servants and a decrease in expenditures of 87.8 million euros. Spending on welfare benefits will drop by 109.1 million euros.
Christofias said this week that he won’t agree to a bailout that requires Cyprus to scrap wage indexation and the so-called 13th salary or includes privatization of profitable state-owned companies.
Conservative DISY lawmaker Averof Neofytou said the government’s plan only partially addresses the country’s structural problems, because it lacks proposals for reform of the financial sector, pensions and wage indexation.
“Cyprus needs a comprehensive plan to get out of the crisis,” he said.