Jordanian monarch walks tightrope in support of IMF reforms

Published July 1st, 2001 - 02:00 GMT

It may appear foolish to compare the violent pro-Intifada demonstrations, which took place in Jordan toward the end of last year, to the anti-globalization protests, which have marred gatherings of the Western economic leadership in Seattle, Prague and Quebec City in recent years. 

 

But there are common threads, and it was a fact clearly apparent to Jordan’s King Abdullah when he reshuffled his cabinet and dissolved parliament earlier this month, without setting the date for a general election. 

 

Ordinarily, the election should be held in November, but it is widely thought that the king will take advantage of a privilege afforded to him by the Jordanian constitution, and delay the next four-year parliamentary term by at least one year. 

 

Why the delay? Ostensibly, the royal palace is concerned that the Palestinian Intifada has further radicalized Jordan’s own majority-Palestinian population, raising the likelihood that a new parliament would be more intransigent when it comes to dealing with the government’s traditionally fence-straddling foreign policy. 

 

But there’s a subtext as well. Senior advisors have been warning King Abdullah that the combination of regional violence and economic stagnation could bring into the parliament a number radical deputies who would light nothing less than derailing unpopular IMF-guided economic reforms, including fiscal restraint and extensive privatizations. 

 

In 1999 the International Monetary Fund (IMF) approved $220 million in loans to help Jordan fund a three-year program of reform. A sum of $61 million was provided immediately, and the remainder of the loan was set to be paid through 2001, providing the reforms stayed on track. The reform package included fiscal and monetary stabilization and promises on major structural reforms, targeting growth of 3.5 percent by 2001. It also calls for major improvements in state budget transparency by bringing government accounts and non-budgeted expenditure into the budget.  

 

King Abdullah’s reshuffling of his government ministers was evidently aimed at providing Prime Minister Abul Ragheb with more cabinet support for speeding up IMF-backed reforms. Although the reforms are unpopular, there is a general consensus among government economists that they are necessary for jumpstarting the economy. 

 

But the government is drawing heavy fire. Writing in the Jordan Times, the economist Yusuf Mansur advised it to ignore a recent set of IMF recommendations. “It is dangerous when the IMF talks, because it usually backs its statements with studies and figures: the literature created throughout the economic reform process is heavily IMF or World Bank based. However, one would be wise to always remember that the IMF, like any good banker, wants its money back,” he wrote. 

 

Mansur was referring to a proposal by the division chief of the Middle Eastern Department of the IMF that the government lower the interest rate, reduce the public debt to lower its interest payments, increase the price of gasoline and restructure the pension scheme.  

 

“Decreasing the interest rate will increase the inflation rate in Jordan, which means that the government will be able to collect more in revenues and thus pay back its debt,” Mansur wrote. But, he added, “Paying back the debt to reduce interest payments to the IMF and others is simply good for the creditors, and not for Jordan, at this time. Rescheduling and debt forgiveness should be the song of the day, and not pay back time. Any available money should go into creating private sector jobs by helping industry and the economy grow without expanding government. The principle is simple: when the head of a household that has not seen food for weeks comes across a few pennies his/her first response should not be to pay back the bank loan but to feed his/her children.” 

 

In the meantime, though, the government can point to a steady, though not spectacular performance. Real economic growth was registered at 3.4 percent over the first four months of the year, compared to 3.5 percent in the last quarter of 2000—close to or within the IMF’s stipulation from 1999. Standard & Poor's forecast real economic growth of 3.5 percent in 2001, compared to 3.9 percent in 2000, and real GDP per capita rising only slowly.  

 

And this was is in spite of the fact that the Jordanian tourism industry has taken a hit from the Palestinian uprising, with revenue plummeting by 8.2 percent in 2001’s first quarter. Tourism revenues comprised 12 percent of Jordan’s Gross Domestic Product (GDP) in 2000, up from an average of 10 percent in previous years.  

 

Standard and Poor’s revised foreign currency issuer rating from stable to positive. Although Jordan suffers from low real economic growth, a high central government deficit, and a debt burden measured at 126 percent of GDP, the rating agency was prepared to give the country the benefit of the doubt because of its traditionally low rate of inflation, and government's commitment to economic reforms. This, noted Standard and Poor’s, is underscored by Jordan’s joining the World Trade Organization (WTO), its signing of a free trade agreement with the United States, and its acceleration of privatization efforts. 

 

“The recently accelerated pace of reforms should boost the country's long-term growth prospects, improve the efficiency of the economy, and enlarge the role of the private sector. Renewed slippage in fiscal targets and structural reforms, however, would curtail Jordan's upgrade prospects,” Standard and Poor’s stated in its report. 

 

By dissolving the parliament and reshuffling the cabinet, King Abdullah appeared to be sending a message to the financial community that he has no intention of not meeting fiscal targets or not completing structural reforms. – (MENA Report) 

 

© 2001 Mena Report (www.menareport.com)


© 2000 - 2019 Al Bawaba (www.albawaba.com)

You may also like