Published April 10, 2013
NICOSIA, Cyprus – A draft bailout document between Cyprus and its international creditors shows that the size of the country's banking sector has been sharply reduced since the country's rescue package was agreed last month.
The draft memorandum of understanding, seen by The Associated Press Wednesday, claims the country's banking sector is now three-and-a-half times the size of the country's economy, down from five-and-a-half times. The new figure is placed in brackets, indicating that it could change further before the memorandum is finalized.
Cyprus's outsized financial institutions were one of the main reasons the country sought a 10 billion euro ($13.04 billion) bailout. As part of the rescue, Cyprus agreed to break up No. 2 bank Laiki, and impose losses on savers with more than 100,000 euros in another lender, the Bank of Cyprus.
Before it is implemented, the memorandum has to be agreed by the 17 eurozone finance ministers and International Monetary Fund and then voted on by several countries' parliaments.
The draft memorandum also makes 30 proposals for ways Cyprus can increase its tax revenue and cut expenditure, ranging from public sector job cuts and wage freezes to taxing big lottery wins and increasing the country's sales tax.
A Cyprus finance ministry official said one way the cash-strapped country is considering to raise revenue is to sell off part of its gold reserves. The official, who spoke on condition of anonymity because he's not authorized to discuss details of the plan, didn't specify how much of the gold would be sold or how much would be revenue raised from a possible sale.
Also Wednesday, U.S. ratings agency revised its outlook for the country from "negative" to "stable." But the agency maintained its rating of Cyprus's debt at CCC — firmly in "junk" territory.