Cape Verde - Domestic policy

The domestic policy of any Cape Verdean government is closely connected to continual economic struggle. In 1995, it was estimated that fully 25% of the work force was unemployed, and a further 26% was under-employed. Only 10% of the land is arable, which is made even worse by the series of droughts that were experienced in the 1980s and 1990s. Less than 10% of the arable land is under irrigation. A holdover from the colonial period is a tenure system of absentee landlords, which discourages those actually farming the land from making any improvements. Despite these deficiencies, fully 40% of the working population is engaged in agriculture (including forestry and fishing). Yet agriculture contributes only around 20% of the GDP and provides only about 10% of the domestic food requirements. The main cash crop exports are bananas, arabica coffee, groundnuts, castor beans, and pineapples. The principle food crops are maize, beans, cassava and sweet potatoes. Beans and maize are inter-cropped staples. Half of Cape Verde's irrigated land is in sugar cane, which is used to produce a local alcoholic beverage. The Mascarenhas government attempted to reallocate this land to staple and cash crops.

Pires's main challenge will be to reduce the fiscal deficit he inherited from Mascarenhas's administration. In October 2001 the International Monetary Fund (IMF) reported that the budget deficit had grown to 20% of GDP. The previous government had raised expenditures by nearly 50% in two years, mainly to cover petroleum subsidies and to reimburse foreign exchange advances. Pires was planning to reduce this deficit to 6% of GDP by introducing a value added tax (VAT) scheduled for March 2002, and more independence from the Central Bank to limit its financing of the budget. He also planned major capital investments for 2002 with financing from foreign grants. Privatization, which he opposed during the campaign, may be unavoidable to help pay off the budget shortfall. Despite a bad harvest in 2001–02 growing season due to poor rains, an upswing in the tourist market and expansion of the state airline promise significant growth. On 1 January 2002, the Cape Verdean escudo was pegged to the euro, which reflects Pires's and Cape Verde's close ties to Europe. Later, in September 2002, Cape Verde received a US $3.3 million loan from the African Development Bank (ADB) to finance a second phase of economic reforms. The reforms will seek to alleviate poverty and complete privatization of state-run enterprises.