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French Version

To appease IMF: Government raises prices and public complaints

The long-term anticipated effects of the government’s recent economic decisions have raised anxiety among economists and businessmen. Four serious economic decisions were made. Within less than one month, major increases were initiated in vital sectors of the economy.

Besides the 9 percent rise in fuel prices, the government also ushered a 5 percent income tax on the interest rates of local banks’ deposits, a 4 percent sales tax on 87 various commodities and another 4 percent extra sales tax on cell-phones subscriptions.

Observers believe the government rushed these increases before the resumption of the democratic process next month. They agree the recent decisions aimed at securing bountiful resources for the government so it can reimburse most of the losses it endured during and after the Iraq war. The government also wants to accomplish the unpopular reforms it agreed upon with the International Monetary Fund (IMF) under the current reforms program, which is scheduled until June 2004.

The sales tax on 87 commodities would bring about JD 10 million in annual revenues. The tax involves foodstuffs, pharmaceuticals, minerals and domestic products. The decision prompted local dairy producers this week to raise their products.

Also last week’s hike in fuel prices secures annually JD 35 million. Minister of Finance Michel Marto said last week that the Kingdom lost more than $80 million over the past four months due to fluctuating oil prices; the government opted for alternative oil sources to replace Iraqi oil supply—at preferred rates—which was suspended due to war.

Economists, however, argue the government’s decision to raise fuel prices was already taken soon after the US-led war on Iraq began on 20 March. "Jordanians will have to get used to the rising cost of living," economist Husam Ayesh said. "People in the Kingdom must change their habits and forget about being dependent on the government," he said.

The current three-year economic reform program, in conjunction with IMF, stipulates the removal of all government subsidies. "Many households in Jordan will suffer the ramifications of the government’s recent decisions. Similar policies would be taken in the future as long as the government is committed to please the IMF," warned Ayesh. "Middle and low-income groups will be the most affected in the long run, since they lack the means to augment their incomes," he explained. "Further steps by the government to support its employees financially will not cover the increases adopted," he added.

A recent forecast by the World Bank indicated that Jordan’s GDP for 2003 is expected to be $9.8 billion (approximately JD 7 billion). With foreign debt estimated at $7.5 billion, the government recently finalized agreements with the IMF and its main creditors to reschedule its debts. The Paris Club allowed Jordan to keep an optimum level of foreign reserves and ease the burden of its debt service to support the balance of payments.

Last week, the government raised the cost of living allowance to civil employees by JD 6 million annually. An editorial in Ad Dustour justified the government’s decision to raise the fuel prices. "The government will have to narrow the deficit in its annual budget to sustain international aid. This can’t be achieved unless it pursues clear and fixed policies to implement open-market economy, which the IMF and other international economic institutions ‘forcefully’ recommend," the editorial added.

"We consider the government’s decision to raise the allowance an insignificant one, not only because it disregards the private sector but also degrades the heightening financial burdens that Jordanians face because of the rising cost of living," said Adnan Merie, a former deputy. "The government keeps increasing prices of basic commodities while maintaining low allowances and salaries that civil servants get since the past 10 years."

The 5 percent income tax on deposits in local banks, would force depositors to invest in projects and other activities, according to some economists. They expect an increase in liquid assets in the short term, as most of the depositors are either businessmen or merchants. Brokers at the Amman Stock Exchange (ASE) noticed a gradual increase in trading volume and demand among shareholders over the recent weeks.

Dismay and frustration also ran high in the private sector. Local industrialists considered the decision to hike fuel prices as "a wrong step at the wrong time." Mohammad Arsalan, president of the Zarqa Chamber of Industry, urged the government to show consideration for the private sector by involving it in policy making. "I call on the authorities to install new mechanisms to regulate the cooperation between the public and private sectors."

He urged the government to find alternatives to counter the losses incurred as a result of the war in Iraq. "Fuel is the backbone for production. The higher the price is, the worse the economy will be," he explained.

Arsalan’s remarks coincided with the fact that Jordanian exports to Iraq continued. About $10 million worth of products to Iraq were exported during the last three weeks. Before the war, 20 percent of Jordanian exports used to go to Iraq.

Amman,19May2003
Ghassan Joha
The Star


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