Cyprus will not accept a bailout from international lenders on the current terms being offered, President Demetris Christofias said on Wednesday, with the indebted government set to propose alternative savings.

Setting the tone for tough negotiations with lenders, Christofias said he would never sign a bailout deal which called for the sell-off of profitable state-owned enterprises, or which would abolish inflation-linked salary increments.

A draft economic adjustment programme prepared by the European Commission, the ECB and the IMF and submitted to Cypriot authorities at the end of July called, among other things, for ending wage indexation, known as CoLA, and embarking on a privatisation programme.

The 29-page document was leaked last month.

"We aren't just saying 'no' to them,» Christofias told Greek state broadcaster NET in an interview. «We are giving them counterproposals. They are being prepared, we are in the very final stages and will provide for as much in savings as they (the troika) wants,» he said.

Cyprus sought aid from its partners in the EU and the IMF in June after its two largest banks suffered huge losses on their exposure to Greece, forcing them to turn to the government for aid. The island, wrestling with its own fiscal imbalances and its first recession in almost 40 years, applied for a comprehensive bailout.

Cyprus's ministerial cabinet was due to meet on Wednesday evening to finalise counter-proposals. Christofias was scheduled to meet party leaders on Friday for further discussions.

Scrapping CoLA and halting payment of year-end bonuses in the broad public sector is unlikely to go down well with a highly-unionised workforce, particularly ahead of a general election in February 2013.

Christofias, elected in 2008, has said he does not plan to seek a second term. The leader of AKEL, the communist party which is Christofias's primary backer in government, recently said Cyprus should even consider an exit from the euro zone if bailout conditions were too harsh.

"You cannot tell someone they won't receive a 13th salary. It automatically means you paralyse the market,» Christofias said.

"I can assure you, I will not sign any memorandum which scraps CoLA. The same applies to two or three other measures,» he said, referring to the 13th salary and privatisations.

[Reuters]