Justin Vela in Lefkosa -

The self-declared Turkish Republic of Northern Cyprus (TRNC) continues to face international isolation as the conflict that divided the island approaches its 60th anniversary. With peace negotiations in deep freeze and the Republic of Cyprus set to bask in the international limelight from the EU presidency, the TRNC is looking for ways to overcome the challenges of marginalization.

"It's a critical time for the Cyprus problem, for the European Union as well," says TRNC Under Secretary Hasan Gungor. Sitting in an office that is part of the presidential compound in Lefkosa, the Turkish side of the divided city known to Greek Cypriots as Nicosia, Gungor met bne with his colleague, presidential spokesperson Osman Ertug. Both men have worked in politics long enough to have experienced first hand most of the diplomatic maneuvering and failed talks of the past decades.

The two men are keen to stress the TRNC's positive developments of late. Adopting a strategy similar to Turkey's, its great benefactor and the only country that recognises it as a state, the TRNC is trying to improve relations with the Islamic world. As Turkey looks to eastern markets as its effort to join the EU stalls, the TRNC is also looking towards the Muslim world as peace negotiations with Greek Cypriots remain unmoved. Though they do not recognize the TRNC, Muslim states may be more willing to do business in northern Cyprus than European countries.

Thus in April, the Islamic Development Bank (IDB) was in town, working together with the TRNC's foreign ministry to hold an investment forum. The IDB has already provided the TRNC with more than $3m for nine development projects in the fields of education, Islamic teachings and investment support. The conference, the second such forum held recently, was meant to introduce the TRNC's private sector to representatives from IDB member countries. "We are trying our best to improve our economic relationships with all," says Ertug.

Ertug says the TRNC is aiming to attract students from Muslim countries to its private universities - attractive for their proximately to Europe - and businessmen to invest in everything from agriculture, to alternative energy, education and tourism.

The two say they would like to see the TRNC become a Mediterranean hub for shipping and storage of merchandise. However, they admit that there are too many unresolved issues to make this possible now. Even the TRNC's few exports - halloumi cheese, potatoes, oranges, and some textiles - are difficult to sell because they are not competitive in European markets due to higher taxes. "The TRNC is a very small closed economy when the rest of the world is open," says Gungor.

Virtually all of what it exports has to go through Turkey. Certificates to trade with Greek Cyprus can be obtained through the TRNC's Chamber of Commerce, but Ertug says Greek Cypriots can impose any price they want. "[Turkish Cypriot goods] are sold below cost price," he says. The economic isolation is so severe that if a ship calls at a TRNC port and then later at a Greek Cypriot port, Greek Cypriots might impose penalties that include jail or fines.

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However, the subject most pressing for the two is Greek Cypriots assuming the EU's rotating presidency this summer. "After July 1 they will not be in a compromising mood," says Gungor. "The Cyprus problem is not going away anytime soon."

Indeed, the last time the Cypriots neared a settlement was in 2004, when former UN Secretary-General Kofi Annan tried to broker an agreement that would create a federation of the two states to reunite the island. Greek Cypriots rejected the so-called "Annan Plan" when it went to a referendum. Gungor says this is symptomatic of a Greek Cypriot strategy to prolong "open-ended negotiations that will last another 40 years."

Today, 68% of Greek Cypriots and 65% of Turkish Cypriots want the current negotiations to lead to a settlement, according to a survey conducted by the Cyprus Policy Centre in Turkish North Cyprus. But while the desire for settlement is there, reaching it is still far off, with 65% of Greek Cypriots and 69% of Turkish Cypriots not believing the current talks will succeed.

The survey also found that a federation is not even the first choice for a solution. 93% of Greek Cypriots prefer a unitary state, in which Turks will be considered a minority; 90% of Turkish Cypriots favour two independent states. A federation comes second, with 79% of Greek Cypriots and 75% of Turkish Cypriots supporting the idea. Only 37% of those surveyed preferred the status quo among Greek Cypriots, 64% among Turkish Cypriots.

Though Gungor and Ertug acknowledge that a federal solution is acceptable to the TRNC government, further negotiations are impossible until after the 2013 presidential election in Greek Cyprus. The incumbent president, Dimitris Christofias, says he will not seek re-election and therefore is not a credible interlocutor.

A completely new process is necessary and a UN representative is conducting shuttle diplomacy to explore ways to find a new framework for talks. Gungor described those efforts as infrequent. "There is no substantial discussion at all. [Current talks] have been exhausted," Gungur says.

Yet he still looks on the bright side. With Greek Cypriots assuming the presidency, at least the Cyprus issue is about to become more visible to the EU. "It will be more observable for the Europeans when they come down here."