International lenders are sending negotiators to Cyprus to conclude an agreement on a bailout package within the next few days, Cypriot Finance Minister Vassos Shiarly said on Thursday.
Finance ministry sources said a three-member team from the European Commission, the European Central Bank and the International Monetary Fund (Troika) may arrive in Cyprus as early as Monday.
Shiarly said he expected negotiations to last only a few days and an agreement would be in place before the end of next week, just in time for a Eurogroup meeting in Brussels on Nov. 12.
"I am confident things will run smoothly and Cyprus will be ready for the Eurogroup meeting," he said.
Geman Chancellor Angela Merkel is reported to have warned her Eurogroup partners that hergovernment is not prepared to consider any bailout agreement after the Nov. 12 Eurogoup meeting, because of the impending electoral period.
Cyprus applied for European Union and International Monetary Fund aid in June after its two largest banks sought state support to replenish their core tier 1 capital, which was depleted by the 73 percent write-down of the Greek debt.
Shiarly's financial team is still working on counter proposals to be put to the Troika, who had submitted a package aimed at generating savings totaling 975 million euros (1.2 billion dollars) at the end of a three to four-year period.
The Cyprus government's counterproposals provide for somewhat higher savings, but through different measures suggested by the Troika.
The exact bailout amount is unclear as the examination of the loan files of the two banks to receive state support is still under examination.
Standard & Poor's, which downgraded Cyprus three notches to "B" from "BB" with a negative outlook on Wednesday, said the burden of recapitalizing its banks could raise the island's sovereign debt to 130 percent of its GDP by the end of this year.
"Given the significant constraints on Cyprus' fiscal flexibility, we view the government's potential debt burden as difficult to service," the rating agency said.
Moody's, who also downgraded the long-term credit rating of Cyprus to B3 from Ba3 last week, estimated the recapitalization amount at 8 billion euros. That would raise the sovereign debt to 140 percent of GDP. (1 euro = 1.31 U.S. dollars)