Greek parliament approves reforms to unlock bailout funds

A Greek national flag flutters atop the parliament building in Athens, Greece, October 30, 2015. REUTERS/Alkis Konstantinidis

ATHENS (Reuters) - The Greek parliament approved a bill on Tuesday containing reforms demanded by the country's international lenders in exchange for 1 billion euros ($1.1 billion) of bailout funds Greece needs to pay off state arrears.

Prime Minister Alexis Tsipras' leftist-led government agreed to enact changes in the public sector wage grid and an opening of the market for banks to dispose of corporate non-performing loans to qualify for the new funds.

The bill also includes measures to improve absorption of EU structural funds and health reforms.

Euro zone institutions representing the creditors and the International Monetary Fund are expected to issue a compliance report on Wednesday, a euro zone official has said.

The coalition of Tsipras' leftist Syriza party and the right-wing nationalist Independent Greeks has a majority of just three lawmakers in the 300-seat parliament. All of the coalition's 153 deputies voted in favour of the bill.

Still struggling to keep loans to small business and consumers out of the clutches of 'vulture funds', the government postponed that part of the reform, promising to regulate that sector by Feb. 15.

It also said it will submit legislation on how to split off the country's power grid operator ADMIE from state power utility PPC and on the structure of a new privatisation fund, without providing a date.

Athens has also presented to its lenders an initial draft of a tough pension reform seen as the biggest political hurdle in the coming months for Tsipras' leftist-led coalition, which was re-elected in September on a mandate to implement the bailout but ease the pain for the poor.

After five years of austerity including 12 pension cuts, the government plans to raise social security contributions instead of slashing main pensions again. But the lenders have signalled reluctance, saying it could further damage employment.

The reform must be adopted in January prior to the first bailout review, which Tsipras wants to conclude swiftly to open the way for talks on debt relief, which he urgently seeks to convince Greeks that their sacrifices are bearing fruit.

In an bid to show that it has maintained its leftist values, the government late on Monday tabled a bill with measures to deal with what the government calls a humanitarian crisis, including allowances for the jobless and the homeless.

(Reporting by Renee Maltezou; Additional reporting by Angeliki Koutantou and George Georgiopoulos; Editing by Paul Taylor and Tom Heneghan)