Jordan’s future stability

Giancarlo Elia Valori

Thanks to the Russian intervention the long sequence of the so-called “Arab springs” has long been interrupted in Syria, but it keeps on expanding elsewhere, considering the many players in the various national “civil societies” that still act within this strategic framework of the Arab springs, which was put in place mainly by the USA and its allies in the Sunni world.

This is undoubtedly the case of the revolt which took place in Jordan early June.

On June 4 last, after the revolt in various cities of the Kingdom and, above all, in Amman, King Abdallah accepted the resignation of Prime Minister Hani al-Mulki.

Hani Fawzi Mulki, former director of Aqaba’s Special Economic Zone, studied in Egypt and in the USA.

It is also worth noting that Mulki led the team that ratified the 1994 Peace Treaty between Jordan and Israel. Later,  after holding many important posts, he was appointed Prime Minister on May 29, 2016.

The major issue for Hani al Mulki’s government was above all the huge increase of the Jordanian public debt: after being renegotiated in 2016 during Mulki’s government, the Jordanian national debt was rescued with a package of 732 million dollars – a three-year loan of the International Monetary Fund.

A loan that was apparently supposed to bring the debt / GDP ratio down from 95% to 77% by 2021.

Debts, however, must be repaid and Jordan has been  forced to follow the usual strategy: less public spending and increase in prices, especially the administered and regulated ones which obviously have a strong political impact.

It is strange for an expense to magically become a revenue, but it is worth noting that Jordan’s public debt is the sum of the dinar-denominated local debt and the external one, which has always been denominated in foreign currencies.

Even in this case the IMF has made no difference. Therefore, in 2016, Jordan’s public debt rose by 4.9%, but almost all this cost regards foreign currencies and not Jordanian dinars.

The magical debt reduction foreseen by the IMF analysts did not materialize.

Nevertheless, also the dinar-denominated prices and values ​​have obviously borne the brunt.

If we sum both the external and internal debt, we reach 39.5% – the official percentage recorded in late 2016.

According to Jordan’s government statistics, the current public debt / GDP ratio amounts to 95.3% – much higher than the 77% foreseen by Western bankers.

Obviously the austerity program needed to repay the international loan in a short period of time created the conditions for the increase in basic commodities and electricity tariffs while, on June 1, King Abdallah ordered the immediate cessation of price increases.

Hence, if we leave the international financial bodies free to operate according to market rules – which are often manipulated – and in key countries from a strategic viewpoint, there will be no humanitarian or non-humanitarian intervention which can restore the status quo ante or regain a credible strategic hold of the Western Forces.

Hani Mulki’s government, however, had proposed to increase the employment tax between 20 and 40%, while the electricity cost for users has risen by 55% since last February.

Has the strategic universe still supporting the failed Arab spring project targeted Jordan, after having failed in Syria, Egypt and, initially, even in Tunisia?

Is somebody thinking to a long war that – pending Syria’s pacification – moves to Jordan, thus setting fire to the most dangerous area in the Middle East? Let us hope not.

After Mulki, the King of Jordan appointed Omar Al-Razzaz as Head of government.

Who is the new Prime Minister?

He is an economist who studied at Harvard and worked for the World Bank, both in the USA and in Jordan and Saudi Arabia.

As former Education Minister, he often opposed free-market policies which destabilize the Third World’s poor masses without producing any acceptable economic result – and he did so when no one was even barely thinking about that.

Moreover, King Abdallah has not yet reaffirmed his support for Muhammad bin Sultan’s new Saudi policies.

Has Saudi Arabia put its invisible hand in Jordan’s destabilization? We cannot rule it out.

But it would be suicidal for the EU and the USA to support Saudi Arabia in this operation.

Saudi Arabia, however, is still key to Jordan’s economic and geopolitical rescuing, although the Jordanian King knows very well that his strategic region is currently ever more complex and multi-faceted and it also includes the Jewish State.

In fact, according to official statistics, Jordan hosts at least 675,000 refugees, probably in addition to further 540,000 unregistered ones.

It is worth recalling that the Hashemite Kingdom of Jordan has a total population of 9.5 million people, of whom 3 million are old migrants or – to put it in the UN jargon – displaced persons while, since 2011, the most recent Syrian crisis alone has cost at least 2.5 billion US dollars to Jordan.

The latest ILO data shows that, in late 2017, Jordan had 2,100,000 Palestinians, 655,900 Syrians and additional  315,000 migrant workers officially registered.

Currently foreign workers are estimated at 950,000 of the total Jordanian population.

The migrants include Egyptians (61.63%), Bangladeshi (15.66%) and Filipinos (5.37%), while the Sri Lankans and the Indians range between 4.72% and 3.65%.

Moreover, the International Donor Conference for supporting Jordan, organized in February 2016, decided that the international community should provide Jordan with 1.7 billion dollars of loans and funds, but only in exchange for the opening of its internal labour market to Syrian migrants and with the further promise of abolishing the tariffs on Jordan’s products to the EU.

The Jordanian economy is currently worth 38 billion a year.

Syria’s clothing industry is mainly functional to the US market, which absorbs about 78% of products, above all thanks to the free-trade agreement reached between the two countries.

In February 2017, however, Jordan raised additional 900 billion foreign funds, including 147 million of World Bank loans, and an additional cash transfer between the USA and Jordan amounting to 300 million – a transaction carried out in December 2016.

It should be reiterated that the basic assumption was that Jordan’s clothing industry, which currently accounts for 20% of the GDP and employs mainly Asians, could provide job opportunities to the large mass of migrants from Syria and work above all for the US market – as already happens nowadays.

Nevertheless 80% of Syrian refugees – 1.3 million currently  in Jordan – live in major cities and not in the regions where clothing is produced, while the statutory minimum wage in Jordan is not enough to even cover the minimum subsistence costs throughout the Kingdom.

This data was probably unknown to those who signed the above stated Jordanian Compact in London in February 2016.

Hence currently the positive results for Jordan are probable access to the EU free markets, as well as the above stated three-year loan to the tune of 1.7 billion euro and finally a ten-year exemption from import tariffs within the European Union.

Hence too little to replace Jordan’s Welfare State with  private economy, which can survive only thanks to wage compression and to the “goodwill and generosity” of Western importers, who can always buy low value-added goods in Africa, in other Middle East countries, in central Asia or in India.

Hence the criterion of bilateral or multilateral commercial treaties, which is currently the compass for both the US and EU actions, is not at all sufficient to support the peripheral countries’ economic development.

We need a real, fast and significant aid program for Jordan, linked to foreign direct investment.

A program that can quickly be a stopgap solution to the economic and social crises of the now imploded Middle East. The danger of jihadist destabilization, with no way out, is closer than we believe.

As Karl Kraus said, “when the house burns, you can pray or wash the floor, but praying is more practical”.

The peripheral countries should be allowed to enter the world market, not with small commercial tricks and stratagems, which always last from the day until the  morning, but with the analysis of every Middle East country’s productive specializations.

It should be recalled, however, that in exchange for funds the Jordanian government had to provide at least 220,000 “job opportunities” for Syrian refugees. Currently the Syrians employed are 39,500.

Jobs are not created, but are self-generated. Otherwise they are more properly called subsidies or unproductive activities disguised as work.

However, confusing the issue of refugees from Syria with the issue of Syria’s economic take-off was a big mistake.

Moreover, the primary economic and political choice made by the Jordanian government was, above all, ensuring new jobs for the refugees in the Special Economic Zones, such as Al Dulayl, north of Amman.

The true economists of the past knew that the labour market elasticity is always limited by its average productivity and the investment share.

In 2017, however, Jordan’s GDP grew less than 3% and currently the GDP growth foreseen by the Jordanian government is less than 2%.

Nevertheless, Jordan must at least double its current growth rate so as to reabsorb – without further political disasters – its internal unemployment which is currently at least 15%.

Hence, what about the economic relationship between Jordan and Saudi Arabia, which has traditionally been essential for the survival of the Hashemite Kingdom?

In 2011, a largely non-bank 5 billion US dollar fund was set up for Jordan by the various Gulf powers, just as the global financial crisis was worsening.

Between 2011 and 2012, Saudi Arabia guaranteed additional 1.4 billion US dollars of cash flow only, as well as further 1.5 billion US dollars of deposits with the Jordanian Central Bank.

During King Salman’s visit to Amman in March 2017, an agreement was also signed regarding 15 bilateral economic transactions between Saudi Arabia and Jordan, which also entails a future agreement for additional 3 billion funds to back Saudi Arabian projects in Jordan.

With specific reference to tourism, which is essential for Jordan’s balance of payments, revenues have fallen by 2-2.5% in recent years.

Currently minimum aid is provided by Saudi Arabia and by the Sunni Gulf powers – and this is precisely the root cause of the Jordanian economic crisis.

Certainly what is at stake is the redesign of the Saudi geopolitical alliances and of the Saudi project known as Vision 2030, within which Prince Muhammad bin Salman plans to create – in the future – an economy no longer depending on the oil financial cycle and oriented to investment where it is more useful, namely in the West.

No more Saudi “free lunch” in the Middle East.

Jordan’s current riots take place in the usual scenario which saw the birth and implementation of the “Arab spring” project.

Increase in the prices of basic commodities, before the outbreak of riots. Later, gradual destruction of the Welfare State to raise money and finally exert control over masses transferred to the jihadists or the Muslim Brotherhood – as happened in Egypt, where the Brotherhood carried out crowd control and provided law enforcement service at Tahrir Square.

Over a longer period of time, the aims are the destruction of the remaining pro-Western middle class, as well as the decline in people’s support for moderate regimes, and finally the breaking of borders.

If this happens in Jordan in the future, Jordan’s crisis will spill over and will inevitably add to the Syrian destabilization, to the Iraqi failed state and to the military tensions on the border between the Hashemite Kingdom and Israel. The worst possible scenario.

It is surprising how the international investment banks are free to destabilize in the Greater Middle East.

In Jordan, as elsewhere in the Middle East and in Northern Africa, the old social contract was defined by some scholars as “autocratic exchange”.

The middle class was supported and expanded thanks to the government selective benefits which obviously bought political stability, while the contributions for food and housing – albeit generic – stabilized the poor people and turned  them into “subordinate masses”, as Elias Canetti said.

The Public Administration wages, which could be found in every family, were interpreted by the masses as very useful safety nets.

Just at the beginning of this millennium, however, this type of social contract has become financially unsustainable.

Nevertheless what was lost with the freeze of public employment wages and the number of civil servants, or with the end of subsidies to the poor, was not recovered by the private sector.

It was obvious that this happened.

At the beginning of the great crisis of 2000, in a world where the social elevator had ensured very fast upward social mobility, unemployment hit especially young people with good qualifications.

As Isaiah Berlin taught us in his extraordinary book The Soviet Mind, they became the arrogant unemployed people we could find at the beginning of every modern revolution, from the French to the Bolshevik one.

From this viewpoint, Al Qaeda’s sword jihad  is the response of the new masses of rootless Arabs at the end of their Welfare State and of the political pact that created and stabilized the Middle East, which had been reshaped and defined in the Cold War and during Nasser-style “national socialism”.

Against this background of slow, but relentless social and economic degeneration, a central role is played by the wasta, i.e. the connections with the power elites, above all of the financial power connected to international “aid”.

Protests in Jordan, however, have now a long-standing tradition.

In 1996 they broke out especially in the poor South of the country against the increase in the price of bread, whereas in 1989 the revolt had been confined to the city of Maan, where King Husseyn managed to hush up and silence the masses, to reform the support network for the poor and to eliminate – as far as possible – the Muslim Brotherhood’s network.

Today, a solution to Jordan’s crisis could be to rebuild contacts with Qatar.

The recent anti-Qatari measures decided by Saudi Arabia and by many of its allies, including Westerners, which also saw Jordan’s partial and lukewarm support, were clearly at the origin of the new tension between Saudi Arabia and the Hashemite Kingdom.

Hence a way out for King Abdallah could now be new support from Qatar and also a new relationship with Turkey.

There is also the issue of refugees that Jordan cannot keep  on its territory. This entails an annual cost of 5.6 billion US dollars of which only one fourth is, in fact, available for Jordan’s finances.

Another safety net for Jordan now comes from Kuwait, with a recent mix of investment, loans and grants.

However, also religion matters in the recent disagreement between Saudi Arabia and Jordan.

The Saudi Prince had asked King Abdallah II not to attend the Istanbul Conference on Jerusalem, but the Jordanian King decided to go anyway, arguing that Jordan is responsible for the city’s Islamic structures, namely the Dome of the Rock, the Al-Aqsa Mosque, in addition to all the other Islamic sites in East Jerusalem.

Abdallah’s refusal was immediately followed by the freeze of the latest Saudi funding to Jordan, with a recent 750 million US dollar tranche that was stopped in Riyadh.

In response, Jordan decided to stop the transit of Saudi trucks to its territory – a traffic of around 3,000 vehicles a day, which is vital to Saudi Arabia.

Furthermore, Saudi Arabia stopped the operations of the Saudi military mission on the border with Syria, in the point where the Jordanian forces hit targets in Syria from Jordanian areas.

Therefore, the link between economic crisis, military strategy and redesign of the traditional equilibria in the Middle East results not only from Western indecision, but also from the end of the Arab Welfare State, which will destabilize those societies as never before.

Certainly a EU and possibly US share of fast aid to the Hashemite Kingdom would be a good solution, at least to begin with.

We doubt, however, that Western decision-makers currently understand the link existing between economy and strategy.