By Hamza Hendawi
THE CYPRUS economy, its direction the subject of a deepening controversy, will go under the microscope next week when a conference attended by a host of prominent economists, bankers and politicians gets under way in Nicosia.
The two-day gathering, organised by The Economist Conferences and entitled Doing Business with Cyprus, will be addressed by nearly 40 speakers, including President Glafcos Clerides and several members of his cabinet.
Opening tomorrow at the Nicosia Hilton, the conference will review the island’s banking, tourism, industry, shipping and off-shore sectors.
The discussions could not have come at a better time.
Emerging from two years of sluggish growth, the economy began 1998 in a flurry of optimistic forecasts as the country geared for a February election which gave business-friendly Clerides a second, five-year term in office.
Economic forecasts released at the time had a distinctive electoral slant, but remain largely credible at present and, barring unforseen developments in the Cyprus problem, are expected to hold true for the remainder of the year.
“I don’t think we have reason not to see all these 1998 forecasts actually coming true,” said Agni Iacovides, the Bank of Cyprus’ chief economist.
“The economic indicators announced were all pre-election, so we should perhaps slightly discount them,” she said.
Adding to the positive mood early in the year was the opening of EU accession negotiations in late March, creating much euphoria and building on a feel-good factor already strong from the victory of the 79-year-old Clerides.
The picture, however, has become confusing over the past few weeks, with a mildly negative sentiment setting in as many speak of a hot political summer ahead.
“My thinking is that, overall, we are getting less than expected in the economy and I don’t see much change by way of an upsurge,” said Yiannis Tirkides, the Popular Bank’s chief economist.
His boss, Popular Bank chairman and chief executive Kikis Lazarides, also warned this week that the economic slowdown of 1996 and 1997 would not entirely disappear this year.
Lazarides’ counterpart at Hellenic Bank, Panos Ghalanos, added to the concern over the direction of the economy when he warned on Thursday that the fiscal deficit was a cause for concern.
He also predicted the economy to grow by only 3.5 per cent this year, down by one per cent from government forecasts. Iacovides, the Bank of Cyprus economist, said her institution saw a 4 per cent growth.
But the answer to who or what should take the blame for the conflicting signals on the economy remains far from clear and depends on who you ask.
The list of suspects features Turkish Cypriot leader Rauf Denktash for insisting that his self-styled state be recognised before negotiations with Clerides can resume. Accusing fingers also point at US presidential envoy Richard Holbrooke, whose latest visit to the island failed in a hail of publicity to narrow the gap between Denktash and Clerides.
“The political stalemate is detrimental to long-term investments and the stock market,” said Tirkides.
Share prices have been caught in a violent roller-coaster ride since May 4, the first trading day of the month, and have shed about five per cent of their prices since the start of the month.
Many traders attribute the fall largely to Holbrooke’s failure.
A potentially dangerous confrontation between the government and the powerful trade unions is also brewing, with cabinet ministers stoking an already tense atmosphere with frequent statements about privatisation and the need to “modernise” legislation governing the right to strike.
Already, the government is embroiled in a tussle with postal workers who went on a one-day strike earlier this month and until yesterday were continuing a work-to-rule protest with disastrous results.
There have also been protests this week by music teachers and Larnaca port workers. A strike by construction workers earlier this month was narrowly avoided, but a battle of wills continues with public sector workers.
“As an indication, the one thing that we may worry about is labour relations and its likely effect on GDP,” said Iacovides, the Bank of Cyprus economist.
Finance Minister Christodoulos Christodoulou, speaking last Thursday to reporters, said the government would soon submit a draft law regulating strikes in sectors providing vital services.
“The draft bill does not abolish the right to strike,” he insisted.
Christodoulou has identified another potential enemy of the economy — the media. Speaking last Tuesday, he said extensive media coverage of the deployment of the Russian-made S-300 missiles due in late summer could negatively affect the performance of the economy. His view is shared by others.
“We seem to have made a habit of talking about the missiles just when the tourists begin to arrive in the summer,” said Yiannos Andronikou of Suphire Stockbrokers.
