UPDATE 3-Cyprus still at odds with lenders

Fri Nov 2, 2012 2:11pm EDT

Related Topics

* Cyprus says waiting for troika for final bailout deal

* Privatisation call resisted by leftist govt

* Island sought aid in June

* Troika still believes Cyprus proposals "insufficient" (Adds troika document, paragraphs 4 and 5)

By Michele Kambas

NICOSIA, Nov 2 (Reuters) - Cyprus remains at odds with international lenders over privatisations and automatic wage hikes, its finance minister said on Friday, but is optimistic that a bailout deal will be brokered soon.

Vassos Shiarly said there were also differences with the European Central Bank, International Monetary Fund and European Commission - the troika - on recapitalisation needs of the island's Greek-exposed banks.

"We are waiting ... to hear when they will come to Cyprus to conclude the final round of negotiations... Now the ball is in their court," Shiarly told reporters in Nicosia.

A document obtained by Reuters in Berlin showed that in the view of the troika, Cyprus's proposals on a possible memorandum of understanding were "insufficient".

"The Eurogroup working group has again urged Cyprus to cooperate with the troika," the document said.

Cyprus applied for an EU and IMF bailout in June after its two largest banks sought state aid to help with massive losses incurred by the Greek debt writedown earlier in the year.

The island has been unable to borrow from international financial markets for more than a year because of high yields on its traded debt.

Shiarly said Cyprus had held "long-distance" talks with representatives of the ECB, the IMF and the European Commission and was expecting them to set a date to come to the island to resolve "no more than five" outstanding issues.

He said the issues yet to be resolved included the troika's call for privatisations, its demand that wage indexation be scrapped, the supervision method of co-operative banks, and the recapitalisation needs of the banking system.

Privatisations and scrapping wage indexation, known as cost of living adjustments or CoLAs, are a red flag for Cyprus's leftist government, deeply rooted in the labour union movement and which faces a national election in February.

"I'll say it from now, I am ready to take to the streets with the workers to defend CoLA," Cypriot President Demetris Christofias said last month.

The government has been careful to state it is against privatisations of "profitable" state assets, such as Cyprus Telecoms CyTA. That organisation pays dividends to the state on its profits each year.

But in the case of other assets, like loss-making Cyprus Airways, it is looking for a buyer.

Cypriot authorities believe the island needs about 5 billion euros to recapitalise its banks, while the troika puts the figure at about 10 billion, Shiarly told lawmakers on Oct. 3, minutes of a meeting leaked to the media this week showed.

A more accurate picture of potential banking needs would only be ready by mid-January, when an outside asset quality review is completed, Shiarly said.

"The difference (in assessment) is not material right now since whatever is decided between us and the troika on the probable recapitalisation amount is preliminary. I don't think that will be a thorny issue preventing the conclusion of a memorandum," he said. (Additional reporting by Matthias Sobolewski in Berlin; Editing by Hugh Lawson)

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