DESPITE the government’s determination not to give in, Turkey’s threats against Cyprus concerning the imminent drilling of natural gas can potentially result in an experience similar to that of S-300. As the ancient Greeks used to say, “necessity forces even gods into compliance”. But this is not inevitable if the government and the parliament act instantly to create a special fund for depositing the proceeds from the exploitation of natural gas, with the Turkish Cypriots’ share going into a special escrow account to be released to the Turkish Cypriots, with interest, upon the solution of the Cyprus problem.
The simple statement that the Turkish Cypriots will begin to benefit when the Cyprus problem is solved is not enough and may even create the suspicion of us stalling to usurp their share. The creation of a fund to guarantee the share of Turkish Cypriots would create an ever-increasing financial incentive for Turkish Cypriots to seek understanding and a solution sooner rather than later.
Such an action would help to defuse the crisis with Turkey without any retreat on our part. If not, we will be preempting Turkey’s arguments and pretexts and prove that its real motives are not the economic interests of Turkish Cypriots, but its own geopolitical expansionism. It will also demonstrate in a practical way to our partners in the European Union and the UN, our good intentions towards our Turkish Cypriot compatriots and our sincere desire for a just solution and peaceful coexistence. Best of all it would be a resounding testament that we consider Cyprus an indivisible entity whose wealth belongs to all Cypriots, irrespective of whether the wealth is found in the south or north. Any other approach would cast shadows of partition.
The benefits of such an action would not only be political. It would also be economic. By establishing such a fund we will be escaping the “resource curse”, the paradox that countries with abundant non-renewable natural resources such as oil and natural gas tend to have lower levels of social development and economic growth than countries with fewer natural resources. This is due to several reasons such as the reduced competitiveness in other sectors of the economy, volatility in government revenue due to price volatility of fossil fuels, mismanagement, inefficiency and corruption caused by the easy wealth.
There is abundant evidence that the income from the exploitation of natural resources reduces the pressure and the incentive to develop a knowledge-based economy and promote entrepreneurship and innovation while it retards the rationalisation of public finances and the practising of sound macroeconomic management. This has been the experience of Venezuela and several Arab and other countries, rich in mineral wealth, which literally have wiped out their development prospects with the inevitable distortions and the complacency that the easy wealth has created.
The money collected in this fund should not be spent on the running costs of the state but be invested in long-term investments such as research and innovation, renewable energy and the infrastructure needed to increase the productivity and competitiveness of the economy, just as Norway, Australia, New Zealand, Kuwait, Alberta in Canada and Alaska in the US have done. These forward-looking countries and states have been saving all or part of their revenues from oil and other natural resources in special long-term investment funds such as the Fund of Future Generations of Kuwait, the Pension Fund of Norway, and the Heritage Fund of Alberta. And why not the Cyprus Heritage Fund or even better the Cyprus Fund of Future Generations? Only the income from these investments is being used for recurrent expenditures.
This is Israel’s approach to the discovery and exploitation of hydrocarbons in its EEZ. But, unlike Israel with its prudent fiscal policies, and strong technological base for efficient use of natural gas revenues, Cyprus faces a serious risk of waste distortion of economic priorities. In Cyprus, in particular, revenues from natural gas risk being wasted to maintain the inflated and wasteful public sector and to increase social benefits and subsidies to organised interest groups, pressures that our political system finds very difficult, if not impossible, to resist.
Our national interest requires of us to urgently establish by law the Cyprus Future Generations Fund with clear provisions to secure the interests of all Cypriots, whether they live in the free or the occupied areas, whether they live in the present or in the future.
We should not wait for a hot episode to take initiatives in the right direction to defuse the crisis, because then they may not count the same as when they are done voluntarily as a practical expression of goodwill. Likewise, we should not wait for the revenue from natural gas to begin flowing into the state coffers to take measures to protect our economy and the interests of our children from the “resource curse”. Then we would not need research committees to investigate and to convey responsibilities. The government and the House will bear full responsibility.
Theodore Panayotou is director of the Cyprus International Institute of Management (CIIM) and Professor of Environmental Economics and Management. He is on leave from Harvard University where he taught for 25 years
