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The war proved a watershed in many senses: causing major structural change, with
the immediate decline in the significance of agriculture; changing the direction and
composition of visible trade and changing the macro economic and financial
position of the Republic's economy. From becoming an international bad boy in
political terms 2 , the Republic of Cyprus was increasingly perceived as an
international victim. In economic terms, Cyprus had largely maintained fiscal
propriety until 1974, government spending was matched by government revenue,
borrowing was low. An open market economy dominated by the prívate sector,
Cyprus conformed with policy perspectives of mainstream capitalist economies.
After the 1974, as macro-economic fashions began to change in response to supply
shocks, persistent inflation and structural change, Cyprus began to look like a centre
of counter culture, still carrying out a conscious policy of full-employment, demand
management, and systematic economic planning. In economic terms it began to look
like an international bad boy again, maintaining strict financial controls, high tariff
walls and high borrowing and international debt. Yet because of the tura around in
its political fortunes, because Greek-Cypriots were no longer perceived as
aggressors but as victims of aggression, let down by the West, unique political
circumstances allowed the Republic of Cyprus, with its monopoly of international
recognition, to be credit worthy beyond rational risk (discussed in Chapter 5).
Following Turkish intervention, the (Greek Cypriot) Republic of Cyprus was able
to get away with what other developing countries were not: increasing déficits
(trade and budget), increasing debts (public and private), and increasing access to
international finance. By the time anyone started worrying about it (a small country
with large debts is very different from a large country with large debts) Cyprus was
looking like a safer recipient of aid and international finance. A number of other
2 "On the Greek Cypriot side they have preferred the fighting to continue, leading to the
extermination of the Turkish Community." The Times, 4/1/1964; "On Christmas eve many Turkish
people were brutally attacked and murdered in their suburban homes..." The Manchester Guardian,
31/12/1963.