When King Abdullah pledged earlier this year that Jordanians will start reaping the fruits of his bold economic reforms in 2001, all factors were playing in favor of the country's ailing economy after months of convalescence. Since then the odds played against high expectations.
Jordan initialed a Free Trade Agreement with the US, increased revenues, strengthened its commercial bridges with Europe and inched steadily closer towards Iraq, its main trade partner.
Hopes for an early recovery, however, paled in the last quarter of a rather tough year, as the Palestinian uprising flared leaving peace talks comatose while international oil prices skyrocketed to a record high benchmark. Even Mother Nature dealt the Kingdom a bad hand. A decade-old regional drought left the agricultural sector hard hit.
Against this backdrop, officials and economists agree that the economy will have to adapt to new realities on the ground by curbing current expenditures and raising oil prices, a recipe that could bode social unrest. Despite the challenges ahead, Prime Minister Ali Abul Ragheb strikes a positive note.
“Work towards an economic boom next year is making strides regardless of the repercussions of the (Aqsa) Intifada, the extended embargo on Iraq and the prevailing tension on the Syrian and Lebanese fronts,” Abul Ragheb declared. In a lecture at the Institute of Diplomacy the premier said his government has sought to reactivate joint higher committees with Algeria, Libya and Iraq.
Doubling the trade protocol with Iraq to $600 million in 2001 and opening the scope of trade links to one billion dollars with sanctions-hit Iraq, partially managed to stave off the consequences of the intifada on the Jordanian economy. Despite the downward economic trend in the last quarter of 2000, overall foreign investment rose to JD800 million this year, up JD70 million from the year 1999.
Abul Ragheb remarked that the enactment of appropriate legislation over the past months made for an atmosphere conducive to investment. The prime minister said privatization, which has moved at a snail's pace, is proceeding actively at the national air carrier, Royal Jordanian, and the water, postal and energy sectors.
Plans are also under way to turn the country's sole maritime outlet into a Special Economic Zone by next June. The projected Aqaba Special Economic Zone is expected to bring in six billion dollars in direct and indirect investments and create 70,000 jobs over the next two decades. With a clear mandate from the Palace, emphasis is being placed on funneling $150 million in investments into the information technology sector as well as promoting tourism.
Deputy Prime Minister and Minister of Economic Affairs Mohammad Halaiqa, who steered the Kingdom to the signing of the Free Trade Agreement with the United States, pointed to this year's economic achievements as being the cutting down of foreign debt, hiking export revenues and making strides towards the transfer of IT technology. “The economic growth rate in real terms is forecast at four percent — the first time in years it is expected to surpass the population growth rate estimated at 2.8 percent,” he told the Jordan Times in a recent interview.
“We were doing very well until the outbreak of the Palestinian uprising which in particular badly affected the promising tourism sector,” said Halaiqa, a leading economic strategist. Finance Minister Michel Marto boasted a decline in foreign debt from $7.3 billion in 1999 down to $6.7 billion by 2000. That translates into 100 to 85 percent of the GDP.
Under austerity measures, the economy sailed easily through the year 2000 with inflation running at a modest 1.1 percent and foreign currency reserves hitting record levels of $2.9 billion, equivalent to nearly 10 months of imports. When in 1999 Iraq raised its oil price tag from $13.5 to $19.5, the government cut down on capital expenditures in order to offset a deficit gap of 125 million Jordanian dinars.
By tightening the belt on badly needed capital expenditures, the government managed to rein in a projected deficit of seven percent before the calculation of foreign aid, a ceiling not to be reached under IMF-dictated economic reform programs. The deficit gap resulting from higher oil prices will even grow higher to JD180 million in 2001, putting further strains on the six per cent budget deficit target.
The finance minister said the treasury will cover JD80 million, leaving JD100 million to be collected through increased fuel prices. Abul Ragheb said on Monday the price hike is expected to cover mainly petrol and kerosene. Economic analysts and officials argue that capital expenditures should soar to avoid extended stagnation in the market.
Salaries paid by the overstaffed public sector and military, coupled with civic pensions, take up a huge portion of current expenditures, running as high as JD1.2 billion a year. The government will thus find itself in a “catch-22” situation amidst meager budgetary resources and growing expenditures.
Two unpopular measures will have a direct effect upon Jordanians' daily life: Expanding the 13 percent tax base, which until now has been applied only to non-essential items, and a hike in fuel prices. It will be another blow to the “thin” wallet in a country where people struggle to maintain the value of their eroded income. Half of the one-million-strong manpower earn $1,200 in per capita income and nearly 30 percent only earn $800.
The last major increase in fuel prices in April 1989 ignited riots in impoverished southern cities. Economist Fahed Fanek explains that a rise in fuel prices, first mentioned in late November by Abul Ragheb following his landmark trip to Baghdad, was “inevitable.” At the time, Abul Ragheb said the price hike was needed to keep Jordan's budget deficit below six percent.
Even with the preferential oil prices granted to Jordan by Iraq, Amman faces an additional fuel bill of $220 million, which must be covered, Fanek added. On the other hand, officials sought to defend the country's new taxation policy. The higher taxation will not “affect the social fabric,” says Iyad Qudah, head of the Sales Tax Department.
Qudah noted that the expanded 13 percent tax will only affect businesses that earn more than JD250,000 ($350,000 per year). It is designed to generate an extra $28 million. Independent analysts have stressed that Jordanians rank among the highest tax payers worldwide with nearly 100 types of taxes and customs in force.
With close to half of the Kingdom's five million people being of Palestinian descent, the bloodshed in the Palestinian territories has made Jordanians call into question the validity of their 1994 peace treaty with Israel. This frustration has played to the advantage of anti-Israel opposition parties and professional associations, led by the Islamist and Pan-Arab currents.
The sixth anniversary of the peace treaty went unnoticed in October as businessmen and officials lamented peace that was once heralded as a cure for the country's economic woes. The flow of Jordanian exports to the Palestinian territories has trickled down since the Intifada erupted nearly three months ago. Cement shipments were virtually halted, dealing a blow to export plans.
A few joint projects have emerged in light of the treaty. But Jordan blamed Israel time and again for maintaining a monopoly over the promising Palestinian market. “Our exports to the West Bank were greater before the 1994 peace treaty,” said a disgruntled businessman. Still Abul Ragheb believes that the establishment of several Qualified Industrial Zones with Israeli interests “had positive impact on the exports in terms of quality and quantity.”
Under the peace treaty, Jordan and Israel erected five QIZs and another four are in the tunnel where joint ventures have customs-free access to the US market. They are expected to create 20,000 jobs.
With insecurity and political uncertainty to the west and limited trade with sanctions-hit Iraq, the government will have few cards to play. “It will seek to shore up an economy dependent on foreign aid while coping with regional instability, and still try to satisfy popular demands,” an official said.
With all viable alternatives taken into account, the government believes that reaching a just and durable peace in the Middle East and lifting the crippling sanctions on Iraq remain a si ne quo non for a healthy economy. — ( Jordan Times )
By Saad G. Hattar
© 2000 Mena Report (www.menareport.com)
