El modelo

Even before the official declaration of Independence, the Cyprus authorities acknowledged that one of its first priorities was the establishment of the necessary mechanisms for economic success. On 1 February 1960 Cyprus therefore requested from the UN to “undertake an intensive economic survey of the island and provide the Government with a report with recommendations for future action”.³⁴¹ A few months later, this report was prepared by the UN Technical Assistance Board under Willard Thorp, whose team executed a thorough study of each sector of Cyprus’

economy, indicating the island’s handicaps as well as its most promising prospects for economic growth. Thorp’s report marked the starting point of the island’s development. The Cyprus Government integrated its suggestions into a structured five-year development programme published on 21 August 1961.

In 1960, Cyprus was categorized as an under-developed country “with political uncertainty and limited potential”.³⁴² Nonetheless, several exogenous circumstances, particularly an increase in the British military expenditure, led the island towards an unexpected economic boom in the period 1950-1957. Paradoxically, before long Cyprus had attained the second highest per capita income in the Mediterranean area, at a time when internal political conditions were distinctly troubled.³⁴³ This

341 Willard Thorp, Cyprus: Suggestions for a Development Programme, (New York: United Nations, 1961), Introduction and Acknowledgements

342 Ibid.

343 Ibid., p.3 Note: Per Capita Income of the area: Israel £185, Cyprus £145, Greece £100, Turkey £75 and the

UAR £45

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reality did not change the fact that the island’s economy struggled with multiple structural problems, significant fiscal imbalances, very limited inter-sectoral linkage and coordination, and a lack of diversity in its revenue sources.³⁴⁴ Agriculture was the largest sector of employment but had a very low productivity rate – almost 44%

of the population was employed in this sector, producing only 16% of the country’s GDP.³⁴⁵ Modern technologies in agriculture and land farming had yet to be introduced. Agriculture production was thus largely dependent on weather conditions.³⁴⁶ The mining industry, an important contributor to the island’s GDP, was also troubled by problems, including the reckless exploitation of natural resources during the previous years and the ensuing reduction of the island’s reserves. The tourist industry was still only fledgling, mainly consisting of mountain resorts while the lack of proper infrastructure such as roads, ports and airports exacerbated the problem.³⁴⁷ Additionally, the economic stagnation that followed in 1958-1959, due to the emergency situation on the island and the gradual removal of the British troops from the region, had led to a sharp decline of the island’s income and a spike in unemployment and emigration, particularly to the UK. Moreover, instability led also to significant flight of capital from the local banks.³⁴⁸

The aim of the first post-independence development plan, therefore, was to address these challenges by stimulating agriculture, creating conditions for the encouragement of private industrial development, improving the country’s infrastructure and promoting Cyprus as an attractive tourist destination. To achieve

344 John Hudson and Marina Dymiotou-Jensen, Modelling a Developing Country, (Avebury: Gower Publishing Company 1989), p.8

345 Paul N. Strong, The economic consequences of ethnonational conflict in Cyprus: The development of two siege economies after 1963 and 1974, (PhD Thesis, London School of Economics, July 1999) p.64

346Thorp, op. cit, p.4

347 Hudson and Dymiotou-Jensen, op. cit, p.9

348 Ibid.

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this aim, the establishment of new agencies and state bodies that would coordinate Government actions, along with the enactment of relevant legislation, were of utmost importance.³⁴⁹ It should also be stressed that Thorp drew attention to the need for effective cooperation between all the various arms of the government.³⁵⁰ This was especially imperative in the case of Cyprus, since the Government was the primary investor in development and efficient management of scarce resources was essential.³⁵¹

The first plan provided £62 million for development over the next five years.

According to a prominent expert, Dr. Renos Theocharis, there were two options for the Government in order to mobilize such a sum for investment: firstly, foreign aid and outside borrowing; and secondly and most importantly, its own budgetary resources.³⁵² The latter option, as Theocharis explained, had two dimensions:

important cuts in public spending with savings allocated to productive uses on the island, and additional revenue derived from direct and indirect taxes. Theocharis lauded the Government’s early record in reducing its expenses and transferring substantial resources towards development. Equally important, Cyprus’ membership in the Commonwealth in 1961 brought significant economic and trade benefits, and thus critical indirect taxes to the Government’s funds.³⁵³ As we shall emphasize, however, a continuing blockage was created in direct taxation policy leading to difficulties on fiscal collection.³⁵⁴

349 Demetris Christodoulou, Inside the Cyprus miracle: the labours of an embattled mini-economy (Minneapolis: University of Minnesota 1992), p.xxxi

350 Thorp, op. cit., p.96

351 Ibid., p.95

352 Renos Theocharis, A general review of the Cyprus economy, in: Cyprus: A handbook on the island’s past and present (Nicosia: Greek Communal Chamber, 1964) 183-208 (p.203)

353 Hunt to CRO: Cyprus and the Commonwealth,14 February 1966: DO 220/118, TNA

354 Ibid.

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In addition to local resources, the Government was also able to secure substantial outside contributions. Firstly, the Treaty of Establishment of 1960 of the newly independent state envisaged that Britain would provide substantial aid to the Republic of Cyprus over five years. Additionally, the Government applied for membership in the International Monetary Fund and the International Bank for Reconstruction and Development. In June 1961 membership was granted, and in 1961 and 1967 the Government requested loans to fund major development programmes.³⁵⁵ Foreign aid was also granted in the form of technical assistance through the UN and other International Organizations.³⁵⁶