News that the IMF Executive Board has approved a $2.05 billion loan (36-month stand-by arrangement) for Jordan to help “correct budgetary and balance of payments imbalances while maintaining social stability”) was received with mixed feelings in Jordan.
For some, the loan provides necessary support to the government and economy; others see the loan coming with stringent conditions and externally mandated “national reforms”, and thus view it with scepticism.
I have a different, third, view.
Before talking about the pros and cons of the IMF loan, let me make some remarks regarding the IMF published justification for the loan.
Jordan’s current economic malaise may have been exacerbated by the Arab Spring, as the IMF said in its statements regarding the loan, but it was definitely not caused by it.
Look at the figures for the period 2006-2011: public debt grew from JD3 billion to JD10 billion; budget deficit (with grants) went from JD440 million to JD1,390 million, and without grants increased from JD748 million to JD2,603 million; FDI decreased steadily, with the exception of a slight spike in 2008, from JD2,512 million to JD1,043 million, and increased again in 2012, according to recent data that is available to all, including the IMF; remittances rose from JD1,532 million to JD2,152 million and increased in 2012 by 1.9 per cent over the past year; tourist arrivals, which decreased from 9.47 million to 8.86 million, also increased by 19 per cent in 2012.
Therefore, one should emphasise the fact that external shocks were not behind the current economic woes. Sporadic government economic mayhem — causing decisions and the persistent mismanagement of public resources were the causes of such dismal economic situation.
The IMF, hence, needs to correct itself and not sound as an uneducated apologist for current policy failures.
It is well-known that the main reason for such a generous bailout to the government is a strong desire by the West and Gulf countries to maintain stability in Jordan. However, the recommendations of the IMF, which focus on removing subsidies while enhancing social safety nets, which together form less than JD1 billion, are ill targeted and can cause greater instability.
Focus, instead, should have been on the lack of proper governance.
The government has used for several years an unwritten or published policy of increased government size and accelerated hiring in the public sector to stave off unrest and calm benefactors. The policy is not working; it has, in fact, damaged the economy and hampered its growth, while squandering its achievements and resources.
Therefore, the IMF should have been more honest in its statements, at least by asking the government to downsize its labour force — let go of the 30 new independent bodies created to increase the government budget by JD1 billion annually, or reduce security expenditures, which make up 30 per cent of the budget, etc.
Now to the loan itself.
Yes, it is a welcome reprieve (the government will thus be able to pay its salaried personnel and pensioners), but it will not address the overall economic problems in the medium or long term, and it will increase the public debt burden.
In fact, without proper reforms, starting with a nationally agreed voting law, there will be no solution, never mind a strong resilient economy. And to blame it all on the Arab Spring is bogus, especially when such statements come from international, arguably respected, organisations such as the IMF.
On the positive side, Jordan has clearly failed to monitor its economic governance since it graduated from the IMF reform programme in 2004. Therefore, some monitoring is better than none, and while I disagree with many of the IMF recommendations, at least this way Jordan will have a programme and vision for action for the next three years. JordanTimes 7/8/2012