Cyprus presidential frontrunner backs bailout

NICOSIA Thu Jan 10, 2013 1:47pm EST

Cypriot opposition candidate Nicos Anastasiades, a frontrunner to win the island's presidential election on February 17, in an interview with Reuters in Nicosia January 10, 2013. REUTERS/Andreas Manolis

Cypriot opposition candidate Nicos Anastasiades, a frontrunner to win the island's presidential election on February 17, in an interview with Reuters in Nicosia January 10, 2013.

Credit: Reuters/Andreas Manolis

NICOSIA (Reuters) - The frontrunner in Cyprus's presidential race promised on Thursday to back the terms of a bailout deal with international lenders, as the euro zone minnow suffered more setbacks in its bid to secure badly needed financial aid.

Cyprus is seeking cash support which could potentially reach 17 billion euros - matching its annual economic output - after its banks booked massive exposure to Greece and fiscal slippage shut it out of international capital markets.

But hopes for a swift deal appeared dashed on Thursday after chief paymaster Germany voiced doubts over the island's commitment to combating money laundering and outgoing Eurogroup chairman Jean-Claude Juncker said an accord was unlikely before the end of January. IDnB5N09N015

With a presidential election in Cyprus on February 17 and a potential runoff on February 24, it looks increasingly likely any deal could be left for a new government to handle.

Nicos Anastasiades, tipped to win elections, told Reuters on Thursday he was committed to implementing the terms of a bailout, although he added that privatizations, sought by Germany, were not among his priorities.

"I fully acknowledge the need for the new government to implement the terms of the Memorandum of Understanding, fully and effectively.. (and) the importance of meeting all targets and objectives," Anastasiades said in an interview.

Anastasiades, president of the right-wing Democratic Rally party since 1997, is clear leader in opinion polls. If elected, he said he would introduce reforms to foster sustainable development and growth, including new business incentives and civil service restructuring.

"We have been temporarily derailed by bad policies, but Cyprus continues to have excellent prospects," he said, referring to the outgoing government as being influenced by "outdated left-wing dogmas".

Out of pocket, Cyprus has for the past few months been relying on short-term, high-cost borrowing from domestic banks and profitable corporations to pay its bills.

MONEY LAUNDERING

Anastasiades said he would be pressing Cyprus's cause at an extraordinary meeting of the European People's Party, a grouping of European centre-right parties, in Cyprus on Friday.

German Chancellor Angela Merkel, whose Christian Democrats (CDU) party has expressed unease over bailing out Cyprus, will be present. A senior CDU member said on Thursday that there won't be any aid for Cyprus unless the country adopted EU rules on money laundering and transparency.

Cyprus says it does conform, and rejects suggestions it isn't vigilant enough to stop suspect activities. That view holds right across Cyprus's otherwise fractious political spectrum.

Council of Europe experts have praised Cyprus for its efforts to get a comprehensive legal framework in place to tackle money laundering, and in December a new set of measures were approved at international lenders' recommendations, Anastasiades said.

"However we are not complacent and we are committed to working together with our EU partners in implementing any further improvements that are deemed necessary," Anastasiades said.

Cyprus's bailout talks are complicated by concerns over it taking on a massive amount of debt that it may struggle to pay back. Under a worst-case scenario, its debt to GDP ratio could rocket to 140 percent of GDP.

SAVINGS WORTH 1.2 BILLION EUROS

In a preliminary bailout deal reached in talks with the so-called troika of the International Monetary Fund, European Commission and European Central Bank, Cyprus has pledged to make savings of some 1.2 billion euros over a four-year period.

The draft deal specifies that this should be achieved by cutting public sector salaries, trimming the benefits system, pension reforms, tax hikes and if necessary to ensure debt sustainability, selling off state-owned enterprises.

The outgoing government has ruled out state sell-offs.

"Privatizations are not a priority in my electoral manifesto," said Anastasiades, although he noted the asset sale provision in the draft deal aimed at ensuring the public debt remains sustainable.

"For reasons not relating solely to privatizations, I hope our debt levels will remain within sustainable levels. I am actually holding the outgoing government and the central bank responsible for this," he said.

Anastasiades said he would use Friday's European People's Party meeting to promote support for the island's bailout bid.

"I'll be making the case that, in a way, the assistance we are requesting is nothing but a good investment on behalf of our partners," he said.

"Harsh and unnecessary conditions that will demolish Cyprus as an international business center should be avoided."

(Reporting By Michele Kambas; editing by Stephen Nisbet)

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