Cyprus, a bridge between the Mideast and Europe; Empires gone, Cyprus charts its own economic course

Assyrian, Egyptian, Persian, Greek, Roman, Venetian, Ottoman, British -- practically every empire that has sailed to or from the Middle East has used Cyprus as its forward operations center.

In strategic location, wrote the geographer Strabo shortly after Cyprus was acquired by the Roman Empire, "Cyprus is second to none of the other islands."

The empires are gone now, part of the colorful cultural and archaeological heritage of Cyprus. Today the 20-year-old island republic has charted its own independent course as an offshore business operations center at the maritime crossroads of three continents (Europe, Asia, and Africa) and a score of developing nations.

And geography is still Cyprus's leading asset.

From Larnaca International Airport, at the southeast of the island, it is a one-hour hop to Cairo or Amman, 40 minutes to Tel Aviv or Damascus, half an hour to Beirut, and just over 90 minutes to Athens in one direction and a bit longer to the Persian Gulf in the other.

Surrounded as it is by the sun-warmed eastern Mediterranean, Cyprus has been able to develop its own stable Western culture in relative peace -- safe from the frequent spillover conflicts of the Middle East and North Africa.

Not that Cyprus is altogether free from political problems. The island has had a modern history of trouble between Greek and Turkish inhabitants. Since 1974, it has been divided de facto into a Turkish north and a Greek south. The United Nations patrols a no man's land that separates communities and slices through the capital of Nicosia. Passage between sides is possible for foreigners, but the two halves have little daily contact otherwise. Border incidents are rare.

Intercommunal negotiations continue in an effort to find some way of reuniting Cyprus. Leaders of both communities seem in more cooperative a spirit than at any time in the recent past, but no one is counting on reunification in the near future.

Meanwhile, a status quo exists in which the Greek south, the Republic of Cyprus, has modernized rapidly. Economic progress in the Turkish north, which refers to itself as the Turkish Federated State of Kibris but is not recognized as a sovereign nation, is going much less well. The north is tied to the poor economy of the Turkish mainland, internationally embargoed, and unsure of its status.

In the south, however, Cyprus is already becoming a preferred Middle East business base for American, European, and even Arab companies -- and for many concerns headquartered in Beirut before that country's civil war made daily commerce difficult. Since 1974, 300 new offshore operations have set up shop in Cyprus; there are a total now of 700. Government financial planners are attempting tempting to further expand offshore business through favorable tax policies and other legislative measures. Other priorities are developing transit trade and international banking and insurance, and modernizing agriculture.

Many economists describe the post-1974 recovery of the republic as an "economic miracle" -- a term that while descriptive of the progress is not favored by government planners. The latter point out that lingering economic problems remain, chief among them the bottling up of almost 40 percent of the island's land and a great deal of its wealth in the Turkish north.

"If by an 'economic miracle' is meant that economic collapse was averted and that Cypriots have made the most of an extremely difficult situation," says Finance Minister Afxentis Afxentiou, "then the description is accurate. But if it is meant that the economic problems created by the invasion have been solved and that conditions now exist for self-sustained growth, this is far from the truth."

Until the Turkish intervention, the Cypriot economy was experiencing strong growth and a favorable foreign exchange situation. But the shock of the 1974 fighting, compounded by rising oil costs and general worldwide inflation, put Cypriots to the test. Besides loss of vital land and resources (the government estimates that 70 percent of Cyprus's income-generating sources were occupied, including 65 percent of its tourist accommodations, 83 percent of its cargo facilities, and 50 percent of its farm output), 200,000 Greeks were left as refugees.

Since 1974, three emergency economic programs have been conducted by the government to tackle immediate social problems caused by the war as well as to develop new sectors of the economy to replace those lost. Originally, this meant encouraging labor-intensive businesses in order to employ the 25 percent of the republic's population put out of work. But by 1978, full employment for adult males was achieved, and the average annual growth rate was clipping along at 15 percent. Since 1979, the government has encouraged capital-intensive projects.

The landscape bespeaks the activity of the past six years. Modern high-rises have proliferated in Nicosia and the coastal towns of Larnaca, Limassol, and Paphos. Land prices have skyrocketed. One often hears Cypriots tell of apartment blocks that have popped up where but a few years ago wild mouflon sheep rambled. Even in the remotest sectors of the Troodos Mountains, high among whitewashed villages, one sees Cypriots driving late-model cars and farmers using modern machines and implements.

But the government emphasizes that there is still a refugee population in need of assistance. The refugees are housed comfortably, and most are back in the work force. But they remain refugees, the government insists, as long as they are prevented from returning to their property in the Turkish sector.

Nevertheless, success of the recovery, according to Mr. Afxentiou, can be attributed to higher worker productivity; to Greek, British, American, and UN aid; tariff protection; and remittances from Cypriots who temporarily worked abroad. Higher exports also helped, along with a boost in tourism, which ballooned early on because of the mass arrival of Lebanese refugees after 1976. By 1980 the number of tourists visiting the south alone had surpassed the number that had visited the entire island in 1973.

The inflation rate of the quickly expanding economy has climbed also, however , registering 13 percent last year. The nation's oil bill has increased tenfold since 1974. Afxentiou warns: "There is no doubt that the economy is facing a serious problem of overheating, with undesirable effects not only on external but also internal stability."

Among the government's goals for f1981 are a slowing of growth while further stimulating exports, and controlling energy expenditures (almost all Cypriot energy sources are imported).

"The government assigns great importance to the improvement of organization and modernization of the economy, the establishment of capital- and technology-intensive units, and the stimulation of competition," Afxentiou says. "Despite the present difficulties the economy has not lost its dynamism."

He ticks off the advantages Cyprus has in the early '80s.

* A skilled labor base, ranging from clerks to managers, employable at relatively modest wages.

* Banking, telecommunication, and support services that are advanced by world standards.

* High quality of life: mild weather, a hospitable populace (most of whom speak some English), a Greco-Anglo culture that, he says, "amounts to part of Europe in the Middle East."

Economics may change over the years, but geography does not. The maturing relationship between the United States, Europe, and the Middle East is sure to include Cyprus at center stage in the next decade.

Mr. Afxentiou says, "The location of Cyprus at the crossroads of East and West, its association with the [European Community], its good relations with the Arab world, and the trading and economic relations with socialist countries -- these give Cyprus an advantage and allow us to assume a special role."