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New economic model

The solution of the Cyprus problem will create a new economic model for Cyprus but it will also need plenty of preparation, according to the Under-Secretary to the President Constantinos Petrides.

In an interview with the Cyprus Weekly, he laid out some of the main work to be done to get ready for the day after.

“It will change the economic model of the Cypriot economy… for the first time it will enable Cyprus to take advantage of its geostrategic position, in shipping, in tourism, in energy, in everything,” Petrides said.

This is why Petrides, who is overseeing a major structural reform drive for the government, is keen to make sure that the institutional framework of a united Cyprus is ready to absorb the changes.
“A solution will be a catalyst of the Cypriot economy, so we have to be ready to grasp the full potential of this growth prospect that a unified Cyprus offers,” he explained.
Last week Petrides travelled to Washington to talk to the IMF, the World Bank and US officials about the necessary groundwork.
They discussed the prospects of a unified economy and issues like the economic viability and sustainability of a united island and “how to ensure strong pillars of economic, fiscal, financial viability that would ensure prosperity”.
While the whole of the Republic of Cyprus territory is a member of the EU, the application of the Acquis Communautaire (body of EU laws and regulations) is “suspended in those areas of the Republic of Cyprus in which the Government of the Republic of Cyprus does not exercise effective control” – in other words, in the northern part of the island.
“We had to make drastic changes and reforms as a result of our accession to the EU … we went through a crisis, we had to undertake all those structural reforms and measures that would bring the economy back on track …and it is our obligation to ensure that a unified economy would be based on strong pillars of viability,” Petrides said.

Getting the facts
One of the first tasks of institutions will be to get the facts on the ground, mainly in the northern part of the island, so that they can draft what is termed the macroeconomic framework.
“What do Turkish Cypriots produce, what is the balance of payments, what is the real fiscal situation over there, what is the situation of the financial sector over there, what would be the effects of unifying the two economies?”
Once that is done, they will need to advise on steps that need to be taken to ensure the functionality of the new economic situation.
“For years we have been talking about a solution that would ensure the viability and functionality of the unified Cyprus. That was always one of the slogans used by all politicians. Now we are asking how we could ensure this.”
The need for proper information means that it is critical that the Turkish Cypriots are also positive about the assistance being offered.
“The Turkish Cypriots also have to be on board; because it is very important for those institutions to have access in the banking sector, in the services, in the statistics… I understand they see it positively.”

Financing the settlement
Work has also begun with international actors to generate financing for the solution.
“There will be a cost regarding, for example, the reconstruction of certain areas, or the creation of a new infrastructure, or other aspects that will need financing. This is something we are looking into in a parallel way, through bilateral contacts, with countries, with the EU, in order to create a donors’ fund, or an active fund with the participation of big financial organisations of investors.”
Petrides emphasised that there is a difference between the one-off costs of a settlement and ensuring the longer-term viability of the state.
In recent days, various figures have been reported in the media about the costs of a solution. Petrides was reluctant to give an estimate on the costs before proper studies have been carried out.
“There are rough estimates. There have been some studies in the past. All of this have to be updated, it will have to be in a new context. … I don’t think there is a universally accepted figure right now”.
Nevertheless, it is clear that initial ideas are being formulated.
“We have to talk with the EU in the context of the regional policy and the structural funds. We have to see whether a sovereign fund could issue bonds, we have to see what kind of assets should be included. There are different parameters, different pillars, and it’s very simplistic and superficial just to say right now what is the cost of the solution.”
Asked how much financial assistance the international community might be prepared to put into a solution he said: “I don’t want to raise expectations. These are also our own concerns. … I think they see a contribution of their behalf in a positive way because a solution of the Cyprus problem, a unified economy, also serves the general interests both of the USA and of the EU.”
“In the past years there has been a significant improvement of the relations between Cyprus and USA. I think that the relationship will be strengthened through cooperation on economic matters.”

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