Troika technocrats start crucial review of Cyprus' economy

Technocrats representing international lenders started a crucial review of Cyprus' economy on Tuesday as the eastern Mediterranean island nears the end of a three-year bailout program.

Cyprus was pulled back from the brink of insolvency in a 10-billion-euro (11-billion-U.S.-dollar) deal with the Eurogroup and the International Monetary Fund in March, 2013.

The program included the world first recapitalization of a bank by turning almost one-half of large deposits worth over 100,000 euros (110,000 dollars) into stock, and also the radical restructuring of the banking system.

Harsh austerity measures led to high unemployment, now standing at about 15 percent, resulting in a large proportion of bank loans being classified as non-performing.

This aspect of bank operations was at the center of discussions opened early on Tuesday at the Central Bank of Cyprus.

Sources said the troika technocrats -- the European Commission, the European Central Bank and the International Monetary Fund -- focused on the progress in implementing legislation regulating the repossession of mortgaged properties and the sale of loan packages to third parties.

The loan securitization was supposed to come into force in May but the troika allowed a three-month extension for better preparations to be made in applying the measure.

Cypriot legislators included a clause in the legislation providing that the Central Bank can vet prospective buyers with a view of preventing funds of Turkish interests from acquiring properties in Cyprus.

Turkey occupied the northern part of the eastern Mediterranean island in 1974, reacting to a coup by Greek army officers. Any change in property ownership through the sale of loan packages would influence ongoing negotiations for a solution to the long standing Cyprus issue.

The issue of properties and territorial adjustments is currently under scrutiny in cross-discussion negotiations, which are reported to be making progress for the first time after decades of stalemate.

Cyprus was mentioned several times during the arduous negotiations for a new financial assistance program for Greece as a good example of a bailed-out country which diligently applied its adjustment program.

But sources familiar with the current troika's mission in Cyprus said that some tough negotiations lie ahead both on loan packages and on privatizing state assets and introducing a General Health System to replace health care provided by state-run hospitals.

Opposition parties which control a majority of seats in parliament are strongly opposed to selling off semi-governmental operations providing telecommunications and electricity.

The introduction of the General Health System has been postponed several times and is likely to be put off again in the aftermath of the resignation of Health Minister Philippos Patsalis.

He submitted his resignation at the end of last week invoking personal reasons.

But Cypriot media reported that Patsalis was vexed because the government delayed introducing his plans for turning individual hospitals into autonomous health care units.

Cyprus has up to now drawn about 6 billion euros (6.6 billion dollars) out of the 10-billion-euro financial assistance amount and it may not need the rest of the money as it can borrow from international markets.

But Finance Ministry officials said the bailout amount may be cashed as cheap money to repay more expensive loans, should international market yields are higher than the 2.5 percent interest on troika loans.