Introduction
This pamphlet highlights the output of the first workshop organized by the
Jordanian Forum for Economic Development held at the Training Center of the Housing Bank
at the Housing Bank Complex in Amman on Wednesday evening, 28 April 1999.
The workshop on "The
Predicament of Economic Growth in Jordan" consisted
of a working paper submitted by Dr. Fahed Al-Fanek, the well-known economic researcher and
commentator, and of two interventions by Dr. Bassam Al-Saket, chairman of the Financial
Papers Corporation. The first paved the way for the workshop and the second marked the end
of the workshop, summing up the conclusions.
A number of well-known economists commented on Dr. Fahed Al-Fanek's paper.
Foremost of these were Dr. Jawad Al-Anani, member of the Upper House of Parliament, former
Deputy Prime Minister and former Chief of the Royal Court; Dr. Muhammad Said Al-Nabulsi,
former governor of the Central Bank of Jordan, chairman of the Board of Directors of the
Al-Thiqah Investments Company; Dr. Muhammad Al-Smadi, former secretary general of the
Ministry of Industry and Trade and director general of the Amman Chamber of Industry; Mr.
Jawad Hadid, director general of the Arab Banking Corporation, Jordan Branch; Dr. Adib
Haddad, dean of the Jordanian Banking Institute; and Dr. Khalid Al-Wazni, professor of
economics at the Al-Hashimiyah University.
The aim of holding the workshop was to determine the internal and external
reasons for the stalling of economic growth in Jordan in recent years and to attempt to
reach a consensus on the policies and solutions which could not only reactivate but also
boost economic growth.
We are pleased to submit to the political and economic decision-makers and
to the private sector corporations the brainchild of the works of the Jordanian Forum for
Economic Development. This brochure is a link in a series of discussions organized by the
Forum with the aims of bridging the gap between the government and the private sector,
activating and enriching dialogue on economic policies, enlightening public on the
economic problems facing the country, encouraging academics and economic researchers into
proposing alternative policies, and preparing comparative studies in order to enrich the
Jordanian experience.
Finally, I would like to extend my thanks to Dr. Fahed Al-Fanek and the
participants in the workshop for the rich ideas and information they presented. I would
also like to thank the management of the Housing Bank for hosting the workshop. I would
like to extend a special thanks to Dr. Bassam Al-Sakit, chairman of the Financial Papers
Corporation and chairman of the Forum Advisory Board, for chairing the sessions of the
workshop and moderating the discussions tactfully and competently.
Executive Summary
The workshop was inaugurated with a welcoming speech delivered by Mr. Hani
Hourani, director general of the Al-Urdun Al-Jadid Research Center (UJRC). There followed
an intervention by the chairman of the session, Dr. Bassam Al-Saket, chairman of the
Financial Papers Corporation, in which he discussed the historic background of the current
economic predicament, and introduced Dr. Fahed Al-Fanek.
In his description of the state of the Jordanian economy, Dr. Fahed
Al-Fanek stated that several indicators of stagnation began to appear as early as 1993.
The rates of economic growth began to decline in the years that followed. This decline
reached its climax in 1996 when the rate of economic growth was barely attained 0.8%. The
rates of growth for 1997 have been estimated at 1.4% and 2% respectively.
The average rate of real economic growth for 1992-1998, the years of the
economic adjustment program, was 5.6% per annum. This impressive rate was higher than the
rate of population growth. Nonetheless, it concealed a declining trend of economic growth
rates. The reason for this is that the repatriated savings of the Jordanian expatriates
returning home from the Gulf in 1991, which contributed to raising the rates of economic
growth in the early nineties, gradually exhausted their positive impact on the national
economy, and the economic growth rates started to decline again, reaching a negative per
capita growth rate in 1996 and continuing at low growth rates, which were lower than the
rate of the population increase in the years 1997 and 1998.
Dr. Al-Fanek pointed out the state of economic stagnation in the Jordanian
economy that began in the mid-1993 coincided with the conclusion of the Oslo agreement. He
explained that the Oslo agreement was responsible for a state of uncertainty as the agreement was open to all
eventualities. Because the direction was not clear, the result was a freezing of
medium-term and long-term investments.
Dr. Al-Fanek argued that there are several external and internal factors
contributing to the economic stagnation. The external factors are as follows:
A- The continuation of the economic sanctions against Iraq.
B- The drop in the international oil prices. This has created budget deficits in the Arab
Gulf states forcing them to introduce austerity programs and to squeeze public
expenditures.
C- The continuation of the restrictions imposed on the trade with the Palestinian market.
As for the internal factors, Dr. Al-Fanek cited the impact of the economic
adjustment program which focused on structural reforms, not on attaining high rates of
growth. He explained that the basic aim of the economic adjustment program was to keep
total demand under control, to reduce public and private consumption, to reduce the
deficit in the state's general budget, and to apply strict monetary policy aimed at
withdrawing the surplus liquidity from the market, curbing bank credits, increasing
interest rates to control inflation, protecting the exchange rate of the national
currency, and building sufficient foreign currency reserves at the Central Bank.
He said all these measures were recessionist in nature stifling immediate
growth, in order to create a long-term growth.
In his assessment of what should be done to make the Jordanian economy
regain its momentum and move ahead again, Dr. Al-Fanek said that a growth rate of 6% is
the minimum required to service the foreign debts, to create new employment opportunities,
to absorb part of the unemployed, and to maintain the general level of income.
Dr. Al-Fanek warned against what he termed the easy solutions which seek to achieve rapid economic
growth at the expense of sacrificing the achievements of the economic adjustment program.
He cited as examples of easy solutions, the raising of the level of monetary liquidity,
reducing the interest rates, and an expansion in government spending. He said while this
might achieve short-term growth, it would lead to a catastrophe, because it would drain
the foreign currency reserves of the Central Bank, increase imports and consumption,
weaken confidence in the national currency, and would ultimately freeze investments. An
expansion in government spending, if not financed by foreign grants, would raise the
financial deficit which could not be covered without resort to increasing taxes, domestic
and foreign borrowing, thus, sacrificing the achievements of the financial reform, and
resulting in further restructuring.
Speaking about the real solutions for the predicament of economic growth,
he argued that safe economic growth comes from three sources all of which lead to the flow
of capital to the country. These three sources are exports, foreign investments, and
grants and aid.
Exports
The exports sector has an enormous potential for growth for a number of
reasons, including:
- Jordan's proximity to important markets;
- the policy of economic openness;
- liberalizing foreign trade from restrictions which are obstructive to this trade;
- bilateral agreements with several Arab countries; a partnership agreement with Europe;
- the agreement of the free Arab trade zone; and finally
- the imminent accession to the World Trade Organization (WTO).
Dr. Al-Fanek said that exports can be viewed as a prime stimulator of
economic growth. The value of exports is included as a surplus in national income
computations. Exports are also a source of foreign currency. He stressed that exports
include not only commodity goods, but also services, such as tourism, higher education and
medical services in which Jordan enjoys a competitive advantage.
Foreign investments
Dr. Al-Fanek pointed out that a high rate of the Gross Domestic Product
(GDP) goes towards investment. However the problem is the type of investments involved,
which have focused on construction and building. These are income-generating projects that
also create employment, but only in the short run. He said that part of the government
measures to improve the investment climate has been completed. However, he warned that
there are obstacles which cannot be resolved by legislation or by new government measures.
Foremost of these obstacles are the unfriendly attitude toward foreign investors and the
government bureaucracy.
He said the resolution of constraints on the Jordanian market have begun
with the approval of the law on the protection of intellectual property and by Jordan's
entry into the European partnership agreement. Jordan is also on the right track regarding
its attitude toward foreign investors and with its efforts to reform the government
bureaucracy. Nevertheless, enormous efforts should be made to make the Jordanian public
convinced of the need for foreign, modern administrative and marketing methods, and
technology.
Dr. Al-Fanek pointed out that attracting foreign investments is the
greatest challenge facing Jordan. He said Jordan's ability to attract foreign investments
will decide whether Jordan will be capable of overcoming its current predicament.
Foreign Support
Dr. Al-Fanek asserted that Jordan needs foreign support and for several
years to come: whether in the form of non-repayable financial grants, exemption from
foreign debts, or by being granted preferential treatment, particularly in exporting labor
to the Gulf markets and granting advantages to Jordanian commodities exported to the
European and American markets.
He pointed out that Jordan has qualified in obtaining foreign support
because:
- it is a factor of stability and moderation in the region;
- it has chosen the path of peace, is reforming its economy before asking others for help,
and is shouldering a major burden in caring for refugees.
General Discussion
Those who commented on Dr. Al-Fanek's paper agreed with him on the
assessment of the factors and causes of the current economic stagnation. However, they
differed with him on the solutions he has proposed, particularly what he called the easy
solutions. They also differed with him on his position concerning interest rates and the
exchange rate of the dinar.
Dr. Muhammad Al-Smadi, the director general of the Amman Chamber of
Industry, called for a review of the policy of total demand management which is
recessionist by nature and has been applied for the last 10 years. He called for a gradual
reduction of the interest rate in order to activate domestic investments. He said he
doubted our ability to directly and rapidly control the external factors of the economic
stagnation. In addition, neither the new legislation adopted nor the administrative
measures applied have attracted additional investments to the country.
Dr. Muhammad Said Al-Nabulsi, former governor of the Central Bank
of Jordan and chairman of the Board of Directors of the Al-Thiqah company, said in his
comments that the fiscal and monetary policies applied at the outset of the economic
adjustment program were the correct measure, and have achieved positive results. However,
they have now out-lived their purpose and consequently there is no longer any reason to
keep these measures. He also supported Dr. Smadi's call for a review of the interest rates
and the exchange rate of the dinar, which have produced limited domestic investment while
maintaining continuous recessionist effects.
Dr. Nabulsi argued that the current position of reserves of foreign
currency is good. These would not be affected by the gradual reduction of interest rates
which would stimulate investment. He also called for the creation of an extraordinary
program outside the state budget to expand developmental spending or to steer the deposits
of the Social Security Corporation from the banks toward direct investments.
Mr. Jawad Hadid, general manager of the Arab Banking Corporation,
Jordan branch, discussed the experience of the countries of east Asia, which had resorted
to a reduction in interest rates in order to stimulate growth following the catastrophe
which befell these countries. He explained that the policy of total demand management by
the Central Bank should not be an alternative to the fiscal policies and administrative
and political reforms, nor an alternative to tackling the social, psychological and
political factors which both restrict investment and create frustration.
He pointed out that the Jordanian economy will witness a cycle of recovery
after absorbing the real estate surplus and after the other basic indictors are balanced
as a result of the implementation of the economic adjustment program. He argued the
Jordanian government should negotiate with the creditor governments concerning the
forgiveness of government debts, which would, in turn, allow the Jordanian economy to
resume growth.
Commenting on Dr. Al-Fanek's remarks about the state of uncertainty in the aftermath of the conclusion of the
Oslo agreement, Mr. Hadid said it is important for Jordanian citizens to have confidence
in their Jordanian identity in order to overcome this psychological-social-political
factor which affects the process of investment.
Dr. Khalid Al-Wazni, professor of economics at the Al-Hashimiyah
University, noted that the part related to the stimulation of supply in the economic
adjustment program has not been implemented. Furthermore, he argues the encouragement of
investment cannot be achieved solely by enacting a law on investments, but requires the
creation of a climate that is conducive to investment.
Dr. Al-Wazni supported the views of the discussants who pointed out that
the high level of the interest rates was unjustifiable. He explained that we have entered
into a predicament. The maintenance of a high interest rate is necessary to protect the
reserves and support the dinar. However, this action has perpetuated the recession.
Dr. Al-Wazni said the postponement of privatization from one government to
another should be stopped. Furthermore, that the concept of privatization should be
corrected. Privatization does not mean one specific thing, such as the sale of the public
sector corporations. In addition, he also called for a diversification of Jordanian export
markets and also asserted the important role of the state in the liberalization of the
economy.
Dr. Jawad Al-Anani, member of the Upper House of Parliament, former
chief of the Royal Court and former Deputy Prime Minister, took the discussion into
another dimension. He differed with Dr. Al-Fanek on the way the economic situation should
be remedied. He argued the problem which is obstructing economic growth does not lie in
the money, commodity or investment markets, but in the labor market. He noted that the
current political climate is responsible for the stagnation because in our division of
labor, we classify human resources either east or
west of the river, or on the basis of
pro-government or anti-government. He said that the solutions are
clear but we are politically incapable of applying these solutions.
The main problem that is affecting the Jordanian economy is structural,
not one of adjustment. He called for coping with the political dimensions of the problem,
the rest is merely technical detail on which we may agree or may not.
Dr. Anani said we should shift in our dealing with the predicament of the
economic growth from generalities to detailed studies and profound analysis of the figures
and statistics. This shift would either produce different results or more accurate
conclusions.
Dr. Adib Haddad, dean of the Banking Studies Institute, said that
he differed from the approach used by Dr. Al-Fanek in tackling the problem of economic
growth. He added that in developing countries, the basic criterion for monitoring the
state of recession or prosperity is not national income or the Gross Domestic Product
(GDP), but is unemployment, which he called "the
convergence point of all economic indicators."
Dr. Haddad criticized the economic adjustment program for its failure to
combat the high cost of living. He said despite the successes achieved on the level of
rectifying the fiscal and monetary imbalances, the program failed to control the
ever-rising cost of living. The program also did not succeed in reducing Jordan's debts.
All that has happened was the postponement of repayment of debts, thereby increasing the
burden of foreign debt servicing to some US $ 800 million per annum.
Participants in the Workshop
- Dr. Bassam Al-Saket, chairman of the Jordan Securities Commission.
- Dr. Fahed Al-Fanek, economic researcher and commentator.
- Mr. Abbul Qadir Al-Dweik, general manager of the Housing Bank.
- Dr. Muhammad Said Al-Nabulsi, former governor of the Central Bank of Jordan, chairman of
the Board of Directors of the Al-Thiqah Investments Company.
- Dr. Jawad Al-Anani, former Deputy Prime Minister, former Chief of the Royal Court,
member of the Upper House of Parliament.
- Mr. Jawad Hadid, general manager of the Arab Banking Corporation (Jordan).
- Dr. Muhammad Al-Smadi, director general of the Amman Chamber of Commerce.
- Mr. Nazmi Al-Abdallah, director general of the Customs Department, Ministry of Finance.
- Ms. Sabihah Al-Maani, director general of the Arab Company for Medical and Agricultural
Preparations, member of the Upper House of Parliament.
- Dr. Ali Atiqah, economic expert, director general of the Arab Thought Forum.
- Dr. Ibrahim Badran, former secretary general of the Ministry of Industry and Trade,
director general of the Palestinian Affairs Department at the Ministry of Foreign Affairs,
- Dr. Adib Haddad, dean of the Banking Studies Institute.
- Mr. Ahmad Abdul Fattah, deputy governor of the Central Bank of Jordan.
- Dr. Fayez Al-Hourani, Arab Mining Company.
- Dr. Bashir Al-Zubi, professor of economics at the University of Jordan, Amman.
- Dr. Khalid Al-Wazni, professor of economics at the Al-Hashimiyah University, Zarqa.
- Dr. Jamal Salah, general manager of the Jordanian Company for the Guarantee of Loans.
-Dr. Jasir Tadrus, the Free Zones Corporation.
- Mr. Riyad Al-Khouri, economic researcher, director of Miba.
- Mr. Hani Al-Suudi, businessman.
- Dr. Mahir Al-Wakid, member of the commissioners of the Financial Papers Corporation.
- Eng. Muhammad Hisham Al-Khatib, the Financial Papers Corporation.
- Mr. Usamah Al-Zubi, head of the Economic Statistics Section, Department of General
Statistics.
- Ms. Tamam Al-Ghol, head of the WTO follow-up unit, Ministry of Industry and Trade.
- Mr. Muhammad Abu Zayd, assistant general manager of the Housing Bank.
- Mr. Ahmad Al-Suwayti, deputy director of the Executive Unit on Privatization at the
prime minister's office.
- Mr. Jamil Al-Nimri, columnist at the newspaper Al-Arab Al-Yawm.
- Eng. Akram Al-Adayilah, independent researcher.
- Dr. Ratib Sweiss, Diplomatic Institute.
- Mr. Samir Ghawi, editor at the Jordan Times.
- Mr. Jamal Abu Obeid, Housing Bank.
- Mr. Fadi Haddadin, economic editor at the newspaper Al-Arab Al-Yawm.
- Ms. Suha Halaseh, economic editor at the newspaper Ad-Dustour.
- Mr. Hani Hourani, director general of the Al-Urdun Al-Jadid Research Center.
- Mr. Hussein Abu Rumman, executive director of the Al-Urdun Al-Jadid Research Center.
- Mr. Muhammad Hatamleh, economic researcher, the Jordanian Forum for Economic
Development.
- Mr. Ziyad Kokash, economic researcher, the Jordanian Forum for Economic Development.
- Mr. Muhammad Al-Hourani, social researcher at the Al-Urdun Al-Jadid Research Center.
