Cypriot FinMin says PSI was a gift to Greece

Cyprus’s Finance Minister Vassos Shiarly does not rule out privatizations if needed to seal a bailout for the island and make a debt even as high as 17.5 billion euros sustainable, he told Reuters on Friday.

Shiarly also said in an interview that the island had formally requested a five-year extension from Russia to repay a 2.5 billion euro loan due in 2016, and that a writedown of Greek debt implemented in early 2012 was a mistake.

“The Greek PSI [debt writedown] was a gift to Greece,” Shiarly told Reuters. “We are not asking for a gift. We are asking for understanding, and a loan on fair terms so we can overcome these financial difficulties we are facing at the moment.”

The east Mediterranean island has in the past blamed its banks’ exposure to Greece for its woes. However it is the first time a minister in government is known to have publicly described the writedown, approved by EU leaders — and by Shiarly’s boss, the Cypriot president — as a mistake.

“There are many people in Europe who believe that it was a mistake to go for a PSI. I say it as well,” said Shiarly. Bailout talks for Cyprus have been complicated by concerns that the potential bill could equal the island’s 17.5-billion-euro annual economic output, making it difficult to pay off.

“There is a provision, a reference, to a possible privatization if need be,” Shiarly said, referring to the draft bailout deal. “That will be considered by us at the time the [bank recapitalization] figure is known, but not until then.”

The bailout report did not name privatization candidates but potential candidates are the Electricity Authority, Cyprus Telecoms (CYTA) and the Cyprus Ports authority. [Reuters]