NICOSIA, Oct. 3 (Xinhua) -- Cyprus put the final touches on Wednesday to an austerity package it intends to negotiate with international lenders after applying for European Union (EU) and International Monetary Fund (IMF) bailout.
The government's Council of Ministers was convened by President Demetris Christofias to an unusual night meeting at which final approval was given to a plan to raise 975 million euros (1.26 billion U.S. dollars) through a combination of salary and benefit cuts and increased taxation.
By approving the draft package the government accepted an economic adjustment program prepared by the so called troika negotiators from the European Commission, the European Central Bank and the IMF.
However, the government insisted that the program be implemented over a 4-year period ending in 2016 instead of a shorter 3-year period suggested by the troika negotiators.
The package will be discussed with opposition party leaders on Friday before being submitted to the troika, expected to be back for further negotiations by Oct. 16.
Finance Minister Vassos Shiarly told parliamentarian and opposition party leaders on Wednesday he expected the package to be integrated into the budget to be presented to parliament later this month.
Shiarly dismissed press reports about an imminent stoppage of payments by the government due to a shortfall of cash.
He said he expected the first tranche of international financial support to be released by the end of December and added that the government had the money needed to pay salaries and other dues until bailout money comes in.
Cyprus requested international aid in July after its two largest banks suffered huge losses on their exposure to Greece, forcing them to turn to the government for aid.
The island has been shut out of capital markets for 15 months and has to face a refinancing of its external debt to the tune of 4.6 billion euros by the end of 2014.
It is also in a deep recession for the first time in almost 40 years and is faced with a steadily increasing unemployment of around 10 percent.
The sum needed to replenish the banking system's capital is still to be fixed after an extensive trawling of their portfolios by a specialized firm.
Economists have warned that too large a sum, estimated by the troika at 10 billion euros, for the recapitalization of the banks would raise Cyprus's sovereign debt to 150 percent of its GDP, an eventuality which would make the debt non-serviceable.
President Christofias said ahead of Wednesday's approval of the package that he would not sign any bailout agreement if the troika insisted on its demands for the abolition of a cost-of-living-allowance system under which salaries go up at times of inflation, for ending payment of a 13th salary at the end of the year and for the privatization of profitable public companies.
He said ending the 13th salary, paid to all employees during the New Year holiday period, would paralyse the economy and push it into a deeper crisis.
"We aren't just saying 'no' to them but we are giving them counterproposals which will provide for as much in savings as they want," he said.
Measures approved by the government include scaled cuts of public service salaries and pensions and a 5 percent contribution by the private sector to be borne equally by the workers and their employers, and also a new tax on private property to be paid by those who benefited from revised town-planning zones. (1 euro = 1.29 U.S. dollars)