Cyprus - Domestic policy

The Republic of Cyprus is an upper middle-income country with a free market economy. Government five-year economic plans provide an appropriate climate for the flourishing private sector. Agriculture in Greek-controlled Cyprus accounts for less than 5% of GDP, industry some 20%, while tourism and services amount to 75%. Since the mid-1970s, Cyprus has become a regional center for foreign offshore companies and banking and is the third-largest registry for commercial vessels in the world. The economy suffered severe dislocations in the aftermath of the Turkish invasion of 1974, because most substantial economic resources and productive capacity were located in the occupied north of the island. Until 2001, sustained foreign assistance and a sound economic recovery program transformed Cyprus into an economic success story with low inflation and unemployment. In 2001–02, however, Cyprus suffered from low growth, largely due to a decline in tourism.

Because of its small and open economy and its heavy reliance on tourism, the Cypriot economy is affected by external developments. Cyprus has had an association agreement with the EU since 1973, which was upgraded in 1987. Three years later, Cyprus applied for full membership. In December 1997, the European Council agreed to include Cyprus in the next phase of EU expansion. Accession negotiations with Cyprus commenced on 30 March 1998. All Cypriot presidents coming from the ideological center/center-right have supported dynamic growth policies, the concept of Cyprus acting as an economic and political bridge between Europe and the Middle East, and the full membership of Cyprus in the EU. In December 2002, the EU scheduled Cyprus's accession for 1 May 2004.

The political problems confronting Cyprus since independence have dominated the domestic and foreign policy agenda of all presidents. Thus, the quest for membership in the EU and active participation in organizations such as the UN, the Nonaligned Movement, and the Commonwealth have been important objectives of all administrations as they seek to reunify the island, to protect the rights of all Cypriots, and assure the sovereignty and territorial integrity of their country. Early in 2003, when it became obvious that the plan for reunification was not going forward, Papadopoulos announced the establishment of a special commission within his cabinet to address the issues of importance to the Turkish Cypriot population.