Out of bailout, Cyprus cautious on funding unity

[March 08, 2016]  By Alastair Macdonald

BRUSSELS (Reuters) - Confident of better ratings and cheaper funding as it exits a euro zone bailout, Cyprus is wary of planning major new borrowing to help fund any reunification and may not need it, its finance minister said on Tuesday.

Harris Georgiades said Cyprus would make a "clean exit" from its 2013 program, confirming the assessment on Monday of the Eurogroup that the island's bailout program will end in March.

Speaking in Brussels after a euro zone finance ministers' meeting, Georgiades said he had no need for a precautionary credit line from institutional lenders and saw no need to add further support for Cypriot banks.

He expected a continuation of policies that have eliminated the public deficit to ensure further upgrades by credit rating agencies that would in turn bring down state borrowing costs -- currently just over 4 percent. "We need investment-grade (ratings)," he said.

A major unknown for the economy is whether and how the Turkish-backed breakaway region in the north of the island is reunited with the Greek-speaking south. Optimism is growing that negotiations to resolve one of the world's oldest frozen conflicts will produce a peace deal in the next year.

Georgiades said he was not factoring in potential positives from reunification, however, or working on funding plans for possible infrastructure investment.

"We are not there yet," he said, adding that immediate heavy investment in infrastructure might not be necessary in northern Cyprus 42 years since Turkey took control in an invasion after a brief Greek-inspired coup.

It was unclear how much funding a reunification process might need, Georgiades said, adding that Cyprus might turn to multilateral lenders such as the World Bank, the European Investment Bank, the European Bank for Reconstruction and Development or the EU's new "Juncker Fund" investment vehicle.

Among potential costs of any accord would be compensation for people giving up claims to land and property lost during partition, one of the most sensitive parts of any deal and one which has yet to be negotiated.

Georgiades said reunification would be "immensely positive" for the Cypriot economy and the region but that he was not budgeting for future gains, just as Cyprus was not yet assuming likely gains from new undersea gas flows.

"We are not factoring anything in of these potentially positive developments," he said. "We wanted to fix the economy ... We don't want to make any assumptions."

Georgiades repeated a call for Turkey to normalize its economic relationship with Cyprus by ending a ban on Cypriot shipping trading with Turkey, which Cyprus says breaches Ankara's customs pact with the European Union. The dispute has led to Cyprus keeping a veto for years on several "chapters" of Ankara's long-stalled negotiations to join the bloc.

EU leaders who struck a draft deal with Turkey on Monday aimed at halting the flow of migrants from Turkey to Europe have held out the prospect of reopening those areas of the talks.

But Cypriot officials say Cyprus opposes linking its veto on accession talks to the migrant crisis and Georgiades said he had seen no new move from Turkey to ease its port ban.

"It is high time," he said, "That Cyprus-flagged ships have access to Turkish ports and waters."

(Additional reporting by Michele Kambas; Editing by Francesco Guarascio and Catherine Evans)

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