NICOSIA, March 20 (Xinhua) -- Cyprus on Wednesday embarked on the seemingly unattainable task of keeping its banking system in working order and its economy afloat, after its parliament overwhelmingly rejected a levy on bank deposits in exchange for a 10-billion-euro (12.9 billion U.S. dollars) bailout by the Eurogroup and the International Monetary Fund (IMF).
The vote threw the bailout program in disarray even as troika negotiators from the European Commission, the European Central Bank (ECB) and the IMF returned to the eastern Mediterranean island in anticipation of a yes vote on the deposits haircut.
However, 36 deputies voted to reject the bill providing for a scaled tax on deposits and 19 lawmakers from the ruling party abstained, to the cries of joy at the result by hundreds of demonstrators.
The bailout program is still on the table and Eurogroup President Jeroen Dijsselbloem has stated that the eurozone stands ready to assist Cyprus to reform its economy.
The ECB also said that it will continue to provide emergency liquidity assistance to Cypriot banks within "reasonable limits" despite its original warning of turning off the tap as of March 21.
But there are strong voices in Cyprus urging the government to do away with a troika bailout and concentrate on raising about 17 billion euros needed to rescue the economy from other sources.
President Nicos Anastasiades will discuss with party leaders and economic advisors Wednesday ways out of the crisis and his finance minister is already in Moscow for high level talks on possible financial assistance.
Anastasiades himself had a 30-minute telephone conversation with Russian President Vladimir Putin shortly after the vote in parliament. The government spokesman in Nicosia said they had a fruitful and constructive talk.
Putin's spokesman said they discussed on issues touching upon the bilateral relations of Cyprus and Russia and the economic situation in Cyprus, including Eurogroup's proposals. He said Putin invited Anastasiades to visit Moscow any time.
A large part of deposits in Cypriot banks estimated at over 15 billion euros belong to about 40,000 Russians living in Cyprus and also to Russian investors and offshore businesses.
A first test for the government will come on Thursday when banks reopen after a three day bank holiday. Authorities are worried that there may be a run on deposits, both by local and foreign depositors.
Options before the Cypriot government for raising the money needed to keep the banks open include issuing long term interest yielding bonds tied to future proceeds from natural gas reserves discovered recently.
Cyprus is believed to be virtually sitting on vast fields of hydrocarbons but the first gas is not expected to be brought to the surface before 2018.
There are two lines of thought among Cypriot politicians and economist on which way the government should move.
AKEL opposition party has submitted a document to president Anastasiades suggesting to raise money through the bonds and also to withdraw the bailout request which was submitted in June last year by the AKEL government. The party expressed concern that Cyprus will be strangled economically by the troika if it gets entangled into a Greek-style bailout memorandum.
A more moderate approach which seems to be favored by the government itself and most economists suggests that while raising a considerable amount estimated at between 6 and 7 billion euros by issuing bonds, negotiations should continue with the troika which has pledged to provide the rest of the money needed for economic stability, estimated at 10 billion euros.
There are several conditions attached to the troika offer, which include an increase of the corporate tax from 10 percent to 12.5 percent, carrying out a survey of anti-money laundering laws and practices and privatizing state owned public utility corporations.
Issues are complicated by deep mistrust between the two sides, as Cypriot authorities believe the troika is bent on destroying its economic model based on the services and banking sectors.
International lenders say that the Cypriot banking sector is oversized and must be downsized and also claim that Cyprus has become tax haven for Russian "oligarchs" and is facilitating money laundering -- a charge vehemently denied by Cyprus.
This mistrust is underlined by the fact that two separate probes into allegations about money laundering have been commissioned. One is to be carried out by the Council of Europe's official Moneyval group on the insistence of Cypriot authorities and the second one by a private firm as demanded by international lenders.
The report by the two groups has been submitted by the end of March.
Finding sources of financial support is a must for Cyprus as the government has run almost entirely out of money to finance running the state and a 1.5-billion-euro bond issue is maturing in June. (1 euro = 1.29 U.S. dollars)