Since mid-2012, Jordan has been embarking on an economic reform programme under the auspices of the IMF and World Bank, to deal with a series of internal and external imbalances in its economic and social structures.
This happens almost seven years after graduating from a long and painful process of economic reform guided closely by the same institution, which lasted for more than 15 years, between 1989 and 2005.
The new economic programme is often lauded by the current government as its own; it is said to solve Jordan’s economic and social challenges.
The real question here is: Does Jordan really have a comprehensive economic programme?
Economic mismanagement coupled with increased vulnerability to fluctuations in oil markets as a result of the country’s dependency on imported energy, on often fluctuating and uncontrolled remittances from Jordanians working in Gulf countries, as well as increasing pressure on natural resources, especially water, and escalating spillovers from the Syrian conflict are the reasons for Jordan’s forced return to the orbit of capitalist, neo-liberal world.
The upshot has been mounting public debt (exceeding 80 per cent of GDP in 2014), slower growth rates, continued high unemployment and poverty rates, sharpening inequalities, and widening fiscal and trade deficits.
Under such circumstances, economic wisdom calls for an expansionary economic policy, accompanied by a targeted industrial programme to ease recessionary pressures, attract foreign and local investment, promote strategic sectors, support small- and medium-size enterprises to maintain their resilience under difficult circumstances, and reduce external dependencies and vulnerabilities by diversifying export base.
What Jordan requires is to achieve a pro-poor growth that creates jobs based on labour intensive advantage and thus reduces poverty and unemployment, and improves the sharpened inequalities.
Since the eruption of the current global economic crisis in 2008, many Western countries, including in particular the US and the United Kingdom, have been following such expansionary policies in order to prevent recession from turning into a depression.
Both the US and the British governments spent trillions over a very short period of time, reducing interest rates to zero, to encourage more local and foreign investment, and even relaxing taxes to speed up economic recovery, create jobs and reduce poverty.
Yet, what we see in Jordan not only contradicts economic wisdom, it also contradicts the experience of Western countries in dealing with economic recession.
Jordan’s much-lauded economic measures (which do not really amount to a comprehensive economic programme) focus only on “fiscal consolidation”.
They are a collection of austerity measures that include raising fuel and electricity prices, imposing higher taxes, increasing corporate taxes on banks, mining and other large companies, and even cutting subsidies on many staples.
They aim at reducing the fiscal deficit mainly and controlling inflation by severely cutting domestic demand.
Rather than helping the patient, such measures, implemented under severe recessionary conditions, can lead to overkill, prolong economic recovery and serve only to increase the misery of the majority.
Even the World Bank has recently (March 17, 2014) warned Jordanian officials that “staying the course with the fiscal consolidation programme may prove challenging”, particularly in the absence of “conditions for increased private investment and improved competitiveness”.
Only this, the World Bank adds, “will help deliver the growth needed to create employment and reduce poverty”.
Where such reforms were deemed successful, they were always accompanied by external conditions that had little to do with the IMF and World Bank policy lending, such as increased foreign investment, further international assistance, improved external environment, violation of IMF-World Bank conditions by national governments equipped with pundits and knowledge about alternative models of economic development.
Apart from some aid from Saudi Arabia (almost $1.4 billion since 2012), few of the above conditions are met in Jordan today.
Worse, foreign investment has been flying out of Jordan in recent years, rather than flowing in, reflecting failure to improve the investment climate in the country, to get rid of red tape and overcome corruption.
Jordan cannot continue to only pay lip service to genuine reforms that can clean up the system, protect private property, provide security, efficient and qualified legal and judicial system, cut bureaucracy, create work ethics and generate trust that is so vital to increase economic transactions.
There are alternatives to the IMF-World Bank development models that are worth considering. Some have already proved far more successful, durable and popular.
It is high time that Jordanian policy makers seek alternative and more successful economic development models.
This requires, above all, political will, well studied and designed expansionary fiscal policy, and a strong, effective and targeted industrial policy similar to the one that was successfully designed, implemented and transformed countries like South Korea, Taiwan, Singapore, Hong Kong and, more recently, China.
By Hamed El Said
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