1 The problem of the displaced Series of policies implemented

2 Economic conditions in 1974 August 1974 situation - a planners nightmare Because :  One third reduction in economic activity. Partly, because of withdrawal of Turkish Cypriots. Contributing estimated 11% to production  47% reduction in gainful employment - from in 1973 to in  Massive unemployment - end of 1974 was 29,6% of Economically Active Population  Loss of productive resources in all sectors particularly heavy in tourism, agriculture, mining and transport Closely integrated economy

3 Economic conditions in 1974  Collapse of business confidence  capital outflow and human emigration – Between 1974 and to people or 7% of population (excluding TC) migrated. Migration: beneficial through reduced unemployment to more manageable levels  inflow of foreign exchange to families of workers  Loss of social and economic infrastructure such as: Housing stock Schools and hospitals Major road arteries Only international airport in Nicosia and deep water port of Famagusta.

4 Social conditions in 1975 But the country also faced extreme social problems  persons or 30% of population displaced, enclaved and unemployed  fully dependent on the state for everyday needs Homelessness – about 45,000 households did not have shelter over their head  All these at a time when government revenues collapsed. introduction of measures was extremely difficult to implement.

5 Economic conditions in 1974 Economic and social adversities required:  Programmes and schemes to enhance business environment, mobilise resources and reactivate production  short term approach rather than medium term  boosting confidence Through reactivation and employment creation  Adopt labour intensive production techniques  But also alleviate poverty Ensure survival of unemployed, enclaved and displaced Strengthen social cohesion

6 One important advantage One advantage at the time  Low level of public debt in 1974  Period implementation of conservative fiscal policies with surpluses There were surpluses in 9 out of thirteen years ( ) public debt in 1973 only 10% of GDP.  This advantage not available now  Whatever required in case of solution more difficult

7 Variety of implemented policies Approaches adopted in 1974 varied and radically different  First important differentiation: emphasis on aggressive and expansionary Keynesian policies - large fiscal deficits Funding mostly from external sources - limited banking sector Made easier by  low level of preexisting public debt and  responsible past public sector approach Situation today - complete opposite  Large public sectors on both sides with high remuneration levels

8 Variety of implemented policies  Aggressive Keynesian fiscal policies adopted 2 pronged approach Stimulate economic activity Provide economic and social support to the indigent  measures to boost economic activity, through infrastructure :  Roads (particularly connect Famagusta district)  New international Airport at Larnaca  New deep water port in Limassol  Expansion of electricity, water, and telecommunications  Infrastructure to support new housing areas

9 Economic policies Plus measures to boost private sector activity  Tax Incentives to businesses Included strong incentives to attract  offshore activities  special system of taxation for shipping register  signing of double tax agreements with many countries  emergency income taxation Trade Unions accepted 20% reduction of wages and salaries  Government guarantees to banks for lending to private sector enterprises.

10 Economic policies  Second radical change Encouraging workers to seek temporary employment abroad  agreement with government of Bulgaria persons registered as working temporarily abroad  represented 9% of gainfully employed in Cyprus  Economic measures helped recovery very strong rates of economic growth ( average 8% annually) Within 3 years (1978) attainment full employment conditions These lasted until 2009, when  international crisis and  endogenous structural problems  Reversed the employment situation

11 Variety of implemented policies Third radical change:  social policies reform - public assistance backed legally  Before administrative system based Council of Ministers decisions  Public assistance law indigent persons - guaranteed minimum legal standard of living Assistance included:  Cash disbursements  Aid in kind (food rations, clothing, household utensils- some from international assistance)  continues to be provided to remaining enclaved persons  Income transfers and grants

12 Various Housing programmes Fourth radical change (No housing schemes prior to 1974)  Ambitious housing policy programmes (because housing situation desperate): Construction of low cost housing on government land Assistance to buy from local contractors Variety of self help housing schemes  Assistance to build either on owned or on government plots  Government would built infrastructure in roads, shops, schools and health centers.  Displaced provide some owned funding and own labour Use of TC abandoned houses Rent subsidies Housing schemes continue to operate to this date.

13 Incentives to the unemployed  Fifth radical change incentive scheme to those finding gainful employment  Because wages and salaries were reduced and welfare assistance relatively generous  Possible disincentive to low wage employment  Unemployed securing gainful employment entitled to continue receiving unemployment benefit:  for 6 months - half the benefit  for further 6 months- quarter benefit  When full employment attained – measure allowed to lapse

14 Educational and health policies Education  Intensive construction programme for new schools at all levels  Extensions to existing schools  Use of TC abandoned schools  Providing financial assistance for third level educational studies abroad. Health  Construction of new hospitals  Establishment of urban and rural health centers.

15 Importance of housing for growth Comments on housing policy,  between 1977 and 1982 housing investment on average 12% of GDP  almost 70% financed through budgets.  Annual number of housing completions reached 8,000 units (1978) compared to 5,000 (before 1973)  Gave boost to construction - between 1975 and 1980 annual growth of construction 20%  extremely strong push on economy

16 Conclusions What can we learn from this enumeration of policies in different fields implemented after 1974  policies flexible both through adoption of radical new measures abandoning them when circumstances changed.  country has collective experience to formulate and implement right policies  flexibility to reinvent these policies if and when they are needed because of solution  capacity to implement policies meet housing demands for those to be displaced and move to areas administered by one or the other constituent government.  position to implement both economic and social policies to meet different set of circumstances  Implementation will be more difficult because already existing public debts.

17 Thank you