Cyprus insists it will resist privatizing state-owned companies, even if its public debt burden is deemed too heavy to bear once it receives an international bailout package.
Cyprus is negotiating a bailout of as much as €17 billion ($22.65 billion) — roughly equivalent to its annual economic output — with the so-called 'troika' of the European Commission, the European Central Bank and the International Monetary Fund.
The money is mostly meant to rescue its banks, which have taken huge losses on bad Greek debt investments. But Cyprus can only get a bailout if it is deemed to have a realistic chance at repaying the rescue loans. That will be determined by a yet-unfinished report on the recapitalization needs of the banks.
Economists estimate a loan of around €17 billion would increase the public debt load to around 150 percent of GDP, which would be considered unsustainable.
Government spokesman Stefanos Stefanou on Tuesday defended the left-wing government's opposition to privatizations, confirming that a final agreement on the bailout will likely have to wait for a new government to come to power after general elections on Feb. 17.
"We believe and we can strongly argue that even if the debt is not sustainable, there are other ways that it can be made so," said Stefanou in a speech to managers and employees of the state-owned Cyprus Telecommunications Authority.
One such way, he said, is for Cypriot banks to receive money directly from the EU's bailout fund instead of through the government. That means the banks, not the government, would be responsible for repaying their rescue loans.
However, the bailout fund won't be ready to help banks directly at least before the end of this year. It is not certain that the new bailout fund's capacity to rescue banks directly would apply retroactively to bailouts that had already been agreed on.
He said future revenues from significant, newly-discovered offshore natural gas deposits can also help the country manage its debt. Though those revenues would take years to tap, they would brighten the country's longer-term financial outlook.
Stefanou said Cyprus is "obligated" for national security reasons to retain control of its telecommunications, electricity and ports authorities. Cyprus was split along ethnic lines in 1974 when Turkey invaded after a coup by supporters of union with Greece.
Cyprus, which has already enacted a raft of public sector wage and benefit cuts and tax increases agreed under the draft bailout deal, will usher in a new government next month when it holds presidential elections. Incumbent President Dimitris Christofias isn't seeking re-election.
Jean-Claude Juncker, the outgoing head of the group of euro area finance ministers, said on Monday that a decision on a Cyprus bailout would probably be made in March.
That means finalizing a bailout agreement will fall on the shoulders of a new government. Nicos Anastasiades, the head of the center-right Democratic Rally party who leads opinion polls ahead of the Feb. 17 election says he would seek to avoid outright privatizations of major state-owned companies that are "nationally and socially beneficial" by overhauling them, selling off a stake or seeking a strategic investor.
Stefanou also rejected allegations that Cyprus is a Russian money laundering hub, saying that other countries' banks also hold billions in Russian deposits.
"Why is Cyprus then in the crosshairs? It's clear that there are expediencies and interests arrayed against Cyprus," he said.