Jordan
CONFIDENTIAL
XXV
82 The economy faces serious problems. Structural weakness in the budget and BoP,
both heavily dependent on declining flows of Arab aid and remittances, have been
brought to a head in recent months by a succession of political and financial
"shocks", culminating in the King's decision to disengage from the West Bank at
end-July. This move halved remittance inflows in August/September and put new
pressure on the dinar, which had already fallen sharply in May. In mid-October,
the dinar was floated and immediately depreciated by 20%. Confidence has yet to
be restored and the parallel market rate remains at a large discount. In November
imports of certain luxury goods were banned and customs fees for non-essential
goods, airport taxes and work permit fees were raised. A freeze on new development
spending has also been announced. Despite these measures, Jordan's ability to
service existing debt is in doubt. Although Iraq has repaid $100 mn of its trade
debt to Jordan and new Arab money is being sought (the UAE recently pledged
$100 mn), a $200 mn euroloan supposedly in the pipeline has not yet been agreed.
Several Jordanian bankers and officials including the Crown Prince see no
alternative to the IMF. Further corrective measures are promised in the
forthcoming budet. It will be difficult to overcome the lack of public and
business confidence in the economy, or to restore economic growth (although the
Saudis would probably provide some aid in support of an IMF programme if they
thought the alternative was instability).
Algeria
83 Economic prospects, already clouded by drought and lower oil and gas prices,
have become more uncertain following the anti-austerity riots in October. The
government is now pushing ahead with political and economic reforms but these will
make it difficult to stabilise the fiscal deficit, reduce subsidies and compress
imports this year as earlier planned. President Chadli Benjedid has now been able
to set aside the objections of the hardliners within the ruling party and press
ahead with economic and political reforms; it is however far from clear whether the
population realise the depth of Algeria's economic problems or understand that
increased austerity is inevitable.
But even with the political endorsement gained
in the recent referendum, and his expected re-election later in December, Chadli
Bengedid may be tempted to back pedal on the introduction of necessary new austerity
measures and will thus find it difficult to stabilise the fiscal deficit, reduce