Cyprus says it has no reason to consider privatizing state-owned companies now because it’s not yet certain that its public debt burden would be too heavy to bear once it receives rescue money from international creditors.
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.
Government spokesman Stefanos Stefanou on Tuesday defended the left-wing government’s opposition to privatizations in a speech to managers and employees of the state-owned Cyprus Telecommunications Authority.
He said Cypriot negotiators had rejected an initial demand by the troika that Cyprus commit to privatizations. Instead, the two sides agreed to include in a draft bailout agreement that selling state-owned companies would be considered only if the country’s debt load is deemed unsustainable.
“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. 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.
He said future revenues from significant, newly-discovered offshore natural gas deposits can also help the country manage its debt.
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.