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Cyprus to decide on new plan aimed at securing bailout

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(Globalpost/GlobalPost)

Cypriot leaders are to decide Thursday on a newly drawn up plan aimed at securing a bailout for the near-bankrupt eurozone member, after parliament rejected a controversial tax on savings.

President Nicos Anastasiades is to "present a Plan B package to party leaders tomorrow at the presidential palace," state television reported Wednesday, after he chaired an emergency cabinet meeting called to weigh the alternative plan.

"A decision on a Cyprus rescue must be made on Thursday at the latest," the official CNA news agency quoted Anastasiades as saying as he left the palace on Wednesday night.

The proposals, which might still include the controversial bank levy in some form, were put forward at the cabinet meeting called to end a crisis that has forced the authorities to shut the Mediterranean island's banks for 10 straight days.

Unnamed government sources quoted by CNA said the rescue plan included the creation of a "structural investment fund, which will be reinforced by various provident funds, real estate," and other sources.

"The fund will also be linked with a bond issue and natural gas prospects," the agency said.

The measures were hastily drawn up after Finance Minister Michalis Sarris failed to make any progress in Moscow talks to secure aid as a rough-bargaining Russia sought lucrative assets in exchange for more help.

The finance ministry said banks, which last opened their doors on Friday, would remain closed again on Thursday and Friday "on grounds of public interest in order to ensure financial stability".

With Monday a scheduled public holiday, there is no prospect of any banking transactions before Tuesday, amid fears of a run on accounts by spooked deposit holders.

That has dealt another blow to Cyprus's debt-laded economy, which contracted 2.3 percent in 2012, having taken a battering from the global financial crisis and its exposure to Greece.

"We cannot buy, we cannot sell," lamented Costakis Sophoclides, the director of a frozen goods company in Nicosia.

"A lot of my customers are hotels and restaurants... and we cannot supply them... I have 25 employees now but next week I will have no products in my stores. What will happen?"

The authorities spent Wednesday in talks after MPs the previous day rejected a measure that would have slapped an unprecedented one-time levy of up to 9.9 percent on bank deposits as a condition for a 10-billion-euro ($13-billion) loan.

The troika of lenders -- European Union, European Central Bank and International Monetary Fund (IMF) -- agreed the bailout on Saturday on condition Cyprus raised another 5.8 billion euros.

Brazil's IMF representative on Wednesday criticised the bank deposit tax plan.

Paulo Nogueira Batista, who represents Brazil and 10 other Latin American countries on the IMF executive board, said the move took him by surprise and called it "highly problematic."

Thursday was "expected to be a difficult day," said the CNA, which quoted government sources as saying Anastasiades would submit the rescue plan to party leaders at 0730 GMT and put it to the parliament in the afternoon.

While money is still available from ATM cashpoints, dwindling liquidity has seen petrol stations close their credit card facilities and many stores refuse cheques.

The head of the powerful Orthodox Church, the largest landowner in Cyprus, Archbishop Chrysostomos II, offered to help by putting church assets at the government's disposal.

Following the parliamentary "No" vote, in which ruling party MPs abstained, Cyprus turned to Russia, with Anastasiades sending Sarris to Moscow to seek new assistance and an easing of the terms of a 2.5-billion-euro loan which Moscow afforded Nicosia in 2011.

Russians have $31 billion in private and corporate cash deposited in Cypriot banks.

Russian Prime Minister Dmitry Medvedev said the bailout had been bungled and that the solution should not damage Moscow's relations with the EU.

"I hope that in the end the solution adopted will be as thought through as possible and will at the same time aid Cyprus and not harm our relations with the EU," he said.

Sarris, meanwhile, was upbeat after meeting his Russian counterpart Anton Siluanov before talks with First Deputy Prime Minister Igor Shuvalov about a possible new loan, describing it as a "very good beginning".

Reports said the Moscow talks would continue on Thursday.

Meanwhile, US Federal Reserve chief Ben Bernanke said that, so far, "we are not seeing a major risk to the US financial system or the US economy" from the crisis in Cyprus.

But he added: "I don't think the impact has been enormous" on markets overall, pointing to the rebound Wednesday in European trade.

Although no solution was yet clear in the Cyprus drama, the extension of the closure of the island country's banks while talks continued appeared to calm markets.

The euro rebounded modestly in early trading on Asian markets Wednesday after earlier sharp losses caused by the Cyprus bailout.

At 2100 GMT, the euro traded at $1.2937, up from $1.2881 late Tuesday.

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http://www.globalpost.com/dispatch/news/afp/130320/cyprus-decide-new-plan-aimed-at-securing-bailout-0