* Cyprus bailout complicated by sustainability worries
* Aid to island could equal its economy
* Country badly burnt by Greek debt write-down
By Gilbert Kreijger
THE HAGUE, Jan 31 (Reuters) - Cash-strapped Cyprus said on Thursday it was hopeful Russia would give it more time to pay its debt so it could wrestle down a looming international bailout bill that could be as big as its entire economy.
Hammered by its exposure to Greece and shut out of international financial markets for almost two years, Cyprus’s bid for international aid has been fraught with concern that the island may never afford to pay off its debts.
Prospective creditors want Moscow, which lent money to Cyprus in 2011, to get involved.
Speaking to Dutch lawmakers in The Hague, Cypriot Finance Minister Vassos Shiarly said he expected Russia to extend the maturity of a 2.5 billion euros ($3.39 billion)loan to 2022 from 2016.
“We have been in touch with them. We have every indication, we hope extensions will be made to enable a sustainable debt,” he told a Dutch parliamentary hearing.
Shiarly also referred to comments from Russian authorities, which, he said, though not made officially spoke of a contribution towards the bailout amount of 17.5 billion euros.
It was not clear if that reference alluded to possible Russian involvement in stumping up fresh cash for the island, in addition to Cyprus’s request for a loan repayment extension. Officials in the Cypriot capital Nicosia declined to comment.
Cypriot President Demetris Christofias said on Wednesday Russia had issued assurances it would join in efforts to salvage the island’s finances..
Pending a bailout, Cyprus has been heavily reliant on high-yield short term debt from domestic banks, and even state-owned corporations.
“We are doing everything we can so that we do not impose any burden...we don’t put pressure on our partners,” Shiarly said.
A draft memorandum of understanding between Cyprus and the European Union and the International Monetary Fund (IMF) says the island could need up to 10 billion euros to recapitalise its banks, badly hit by an EU-sanctioned writedown of Greek government debt in early 2012.
In addition, the island needs up to 7.5 billion euros for fiscal needs. The banking figure could change pending the results of an asset quality review now underway.
Cyprus and the EU have ruled out any question of a debt restructuring including a haircut - or cut in the valuation of the assets - but bondholders nearer the bottom on the repayment queue in Cyprus will take a hit.
“Provisions have been made for a (write down in debt), unfortunately, for junior bondholders. A very unhappy situation but out of necessity we have no choice,” Shiarly said.
As he spoke, about 200 junior bondholders who claim they were duped by banks staged angry protests outside the central bank and the Bank of Cyprus in Nicosia.
Some euro zone member states, notably Germany, have also expressed unease at the island’s close business ties with Russia, and its commitment to fighting money laundering. Cyprus says it has all the safeguards in place.