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Cyprus has 4 days to come up with new plan to avoid bankruptcy

Cyprus has four days to agree on a new plan to raise funds to avoid bankruptcy after the European Central Bank (ECB) warned that it would pull the plug on the country's banks.

twitter-logo Associated Press   Nicosia     Last Updated: March 21, 2013  | 00:00 IST

Cyprus has four days to agree on a new plan to raise funds to avoid bankruptcy after the European Central Bank (ECB) warned that it would pull the plug on the country's banks at the start of next week if no bailout deal is agreed.

Facing the ultimatum, the Cypriot government was trying on Thursday to drum up support for a new proposal that will please lawmakers in Parliament as well as the country's potential international creditors.

The "Plan B" was being hashed out after lawmakers soundly defeated an earlier proposal to seize up to 10 per cent of all domestic deposits to finance a rescue of the country.

Cypriot government officials have said the new plan includes a smaller deposit grab to ease the pain on small savers, restructuring the country's troubled banks and raising money from domestic sources, including pension funds and subsidiaries of foreign banks active in Cyprus.

Cyprus has to find 5.8 billion euros ($7.5 billion) in order to unlock a 10 billion euros bailout from its euro partners and the International Monetary Fund (IMF).

Russia is also expected to pitch in, but its contribution will be smaller than originally hoped for, Cypriot officials have said. Nearly a third of all deposits in Cyprus' oversized banking sector are held by Russians.

Cyprus Finance Minister Michalis Sarris has been in Moscow since Tuesday seeking to forge a deal and is due to have more discussions with his Russian counterpart, Anton Siluanov, later on Thursday.

"We are discussing the subjects of gas, bank cooperation and other subjects," Russia's ITAR-Tass news agency quoted him as saying. Cyprus has recently discovered significant off-shore gas deposits, and major energy companies have shown an interest in tapping those resources.

Banks, which have been closed since last Friday, have been ordered shut until Tuesday to prevent a run. In central Nicosia, lines of angry people formed at some ATMs of branches of Laiki Bank, the country's heavily indebted second-largest lender.

Although ATMs have been dispensing cash during the bank closure, some have run out.

Cyprus' troubled banks have enough money until Monday after the European Central Bank said it will switch off its lifeline on Monday unless an international rescue is in place.

The ECB is keeping the Cypriot banks alive by allowing them to draw on emergency support from the local central bank.

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