Jordan’s Economic Conundrum

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By Rana Kattan and Hiba Zayadin

The inevitability of the events that unsettled Jordan in the past weeks is hardly a confusing fact to fathom, but the dominoes that had to fall to get to this point are.

On 13 November, Prime Minister Abdullah Ensour, appeared in an interview on Jordanian national television imploring the people of Jordan to support his ill-timed decision: a raise in fuel prices.

To the people, that meant spikes in household gas costs by 53 per cent, gasoline by 12 per cent, and public transportation by 11 per cent.

In explanation, Ensour spoke of the recent irregularity in energy imports, the whimsical nature of Gulf aid and the country’s unfortunate lack of resources.

But what the people really wanted to hear he only alluded to, and so they spilled out onto the streets in droves and their chants —focused on purging the country of corruption — grew loud and fearless.

Ensour knew his drastic measure would be met with opposition, and yet he stressed that it was absolutely necessary. “Is it right for me to be postponing this decision to preserve my popularity?” he asked.

In September, then Prime Minister Fayez Tarawneh made just that decision, and people reacted just as they reacted to Ensour’s announcement; demonstrations broke out as households saw their energy costs soar.

But unlike the present, King Abdullah intervened in September and quickly reversed Tawarneh’s decision to block a sharp unrest and sidestep angry protests across a Kingdom teetering on the edge of an Arab Spring.

As revolutions were spreading across other Arab countries, Jordan’s economic woes were building up.

It is now squirming under a five-billion budget deficit; an economic reckoning that it simply cannot avoid any longer.

How much of the blame can be apportioned to internal inefficiency and corruption and how much of it was beyond the Kingdom’s control?

Arab Gas Pipeline

pipeline-m-38917Although it borders two of the richest countries in terms of crude oil reserves — Iraq and Saudi Arabia — Jordan has minimal reserves of its own and relies almost entirely on external sources to meet its domestic energy demands.

Up until 2003, Jordan had been receiving oil from Iraq at a preferential rate of US$30 per barrel. The US invasion forced the government to seek alternatives, and so it signed an agreement with Egypt that year to import 250 million cubic feet of natural gas per day at a discounted rate of US$2.15/one million BTU.

Consequently, a gas pipeline was commissioned from Egypt to Jordan, which also supplies Israel with natural gas under a separate agreement at rates even more competitive than those provided to Jordan.

In February 2011, deep within Egypt’s Sinai desert, while protesters in Tahrir Square were but a few days away from toppling Husni Mubarak, an explosion blew up that pipeline.

Repeated attacks have plagued it since then, forcing sporadic halts in natural gas supplies to Jordan, which relied on Egypt for more than 80 per cent of its electricity generation needs, and Israel, which was affected but had its own supply of natural gas resources to weather the unpredictable.

The Sinai saboteurs, who planted those explosives reportedly as a form of protest against the low-cost gas flow to Israel, instead marked Jordan down as a casualty.

The Jordanian government, scrambling for an alternative, had none to turn to but the open market, from which it bought heavy fuel oil and diesel reserves at the global market price, which, at times, exceeded US$100 per barrel.

Jordan Petroleum Refinery Company (JPRC) has been re-selling the oil to distribution companies at significantly lower rates as part of a system of subsidies and grants for important staples (food, power, and fuel).

With the disruption of oil supplies from Libya, still recovering from its revolt, and increasingly stringent sanctions imposed by the west on Iran leading to further threats of shortages in supply, crude oil prices have been volatile and generally on a rising trend throughout 2011 and 2012.

This has cost the Jordanian government at least four billion US dollars in increased deficit throughout the two years, halving its foreign reserves from 14bn to 7bn, and threatening to slash them to nil by 2013 if conditions remain unchanged, a point that Ensour strongly emphasized in all his recent interviews.

Foreign Aid 

When looking at how energy is being sourced and distributed in Jordan across the years, one is able to reach a vital realization; the government today finds itself facing an alarmingly wide deficit that is growing at unsustainable rates. The quest for cost-efficient solutions cannot be deferred.

Conventionally, governments obtain revenues to finance their expenses through internal sources, mainly taxation, tickets and fines, surpluses from public enterprises and remittances. In Jordan’s case, internal sources, due to widespread inefficiencies within the public sector, have fallen short of covering expenses and the government has been heavily reliant on international aid.

Arab Gulf countries, Saudi Arabia in specific, have been a main source of financial aid, but dependency on others rarely comes without a price.

“Foreign aid does not come without strings attached,” said Shukri Bishara, former CEO of the Housing Bank for Trade and Finance, adding that many elements could affect the steady flow of aid into the country. This time, many believe the issue was political.

“Gulf countries would’ve liked us to take a more proactive role on Syria,” said Bishara, citing the differences between Jordan’s careful stance on the Assad regime and the Gulf’s bold stand against it.

Quantitatively, this rift resulted in about 36.5 million US dollars in international aid received in the first nine months of this year as opposed to 1.48 billion last year. Ensour further clarifies that not a single dollar of this year’s aid came from the Gulf. This has sent Jordan off on a rough road in search of substitutes.

Efforts to cover this deepening void finally bore fruit in August 2012, when the government was able to secure a loan worth two billion US dollars from the International Monetary Fund (IMF).

For the people of Jordan, the implications of this loan were hard-hitting.

Consistent with its loan programs, the IMF sets certain degrees of austerity as conditions for their loans. To receive the loan, Jordan is required to reduce public sector financing needs, in specific fuel subsidies, and to lower public debt.

Cutting subsidies and merging public entities to tighten its belt are not the only tools used by the government to save the country from bankruptcy. As Kristina Kostial, the IMF mission chief to Jordan, stated in an IMF survey about the program; the government plans to employ a multi-faceted strategy that it believes will significantly reduce its economic woes.

A long overdue revision of tax policies to achieve a more equitable income distribution is high on the agenda. Coupled with stringent tax administration, this should ideally increase the government’s revenues with the ultimate aim of reducing dependency on foreign aid to balance its budget.

In short, the plan should seek to reduce wastefulness within government practices and promote a cost-efficient culture.

When we think about how our lives have turned out, or in this case Jordan’s economy, we have a tendency to blame circumstances for our misfortunes. It is worth considering, though, that in many cases, inefficiency stems from corruption.

November protests in Amman. Photo by Ali Saadi.

November protests in Amman. Photo by Ali Saadi.

Corruption

Internal corruption may have played a smaller part in the deterioration of our economy, but it is the only element within control of Jordan’s government, its people, and most importantly the King.

“Corruption is not a defining factor, but it is in itself perceived as a very serious affliction,” said Bishara.

Pro-reform demonstrations have been punctuating daily life in Amman since last January.  In the fight to end corruption, it is everyday citizens who have been most active in bringing awareness and placing pressure on the government.

Since upheavals across other Arab countries began to take hold in 2011, Jordan’s monarchy was quick to declare a reform agenda and a more pro-active approach to corruption; a reality deeply entrenched in the country’s governance and even the smaller-scale functioning of everyday life.

During the last two years, the Anti-Corruption Commission (ACC), established in 2006, referred more than 80 cases of legal, administrative, and financial violations to court.

In many of the most prominent cases, namely former Amman mayor Omar Maani’s fraud case in December 2011, former director of Jordan’s intelligence service Mohammad Dahabi’s money laundering case in February 2012, and the much talked-about case of convicted business tycoon Khalid Shahin, people weren’t satisfied with the outcomes. A growing public debate revolved around the absence of professional and independent investigations into corruption cases.

“I think the socio-political paradigm that prevails in the country has changed and protests are irreversible,” said Bishara, “Cosmetic measures won’t work anymore.”

In an effort to calm the streets of Jordan, King Abdullah, called for constitutional reform, replaced his government a few times, and established a National Dialogue Committee, charged with drawing up a new electoral law.

Pro-reform groups were hopeful. In October 2012 however, when the electoral law was finally passed, it was clear not much change had taken place; 82 per cent of parliament would be  elected according to the same old procedure.

Marwan Muasher, former Jordanian Minister of Foreign affairs and vice president for studies at the Carnegie Endowment in Washington, wrote in an article in August 2012:

“If reform from above has any real chance to succeed, it would be in Jordan. But it will require a dramatic shift of priorities by a system that has been so far resilient to serious change — a shift that can be led only by the king.”

Although Jordan’s political situation and its economic one may seem at complete odds, where one economically sound decision may translate into a tense political atmosphere, ultimately the two are intertwined.

Had the public had more trust and faith in its government, it may have more readily accepted its drastic measures. Had the people seen genuine positive change stemming from those high up on the governmental ladder, they may have chosen to enact change within their own environments.