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Cyprus Seeks to Build Bailout Momentum After Agreement on Banks

Nov. 19 (Bloomberg) -- The Cypriot government seeks to wrap up a bailout deal after the central bank reached an agreement in principle with the so-called troika on the east Mediterranean island’s financial sector.

Today’s talks, which began about 1 p.m. in the capital Nicosia, are focused on fiscal and structural issues, government spokesman Stefanos Stefanou said in an e-mailed statement.

The Cypriot central bank and the troika that oversees euro- area bailouts agreed yesterday on a package of as much as 10 billion euros ($12.8 billion) to recapitalize the country’s banks, which lost more than 4 billion euros in Greece’s debt restructuring, according to Aliki Stylianou, a Central Bank of Cyprus spokeswoman.

Cyprus on June 25 became the fifth country in the euro area to seek a rescue, which will encompass the public sector as well as banks. One in two Cypriots believes the government should sign a deal for aid from the euro area and the International Monetary Fund, a poll by Cypronetwork for state-run broadcaster CyBC showed.

The size of Cyprus’s bailout may change depending on an assessment of the country’s banks by Pacific Investment Management Company LLC, the preliminary results of which are expected on Dec. 7, Stylianou said.

The troika, comprising the European Commission, the European Central Bank and the IMF, has submitted a revised bailout proposal to Cyprus that calls for budget cuts of 1.2 billion euros, compared with 975 million euros included in its previous proposal, CyBC reported on Nov. 16.

Budget Cuts

The troika wants Cyprus to adopt a timetable for privatizations and eliminate government allocations to the Social Insurance Fund, CyBC said.

The Cypriot government countered with a plan for 1.1 billion euros of budget cuts that could increase by 100 million euros if necessary, CyBC reported yesterday. The government is resisting the troika’s demand to end wage indexation and to sell state-owned companies.

Refinancing of public debt wasn’t included in the financial-sector agreement, Stylianou said. That agreement covered liquidation of collateralized property, supervision of cooperative saving banks and convertible securities sold to Cypriot investors by banks in an attempt to raise capital.

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