Jordan Times
Thrsday,October 29, 1998
Senior banker blames strict implementation of adjustment programme for deepening recession
AMMAN (J.T.) — Despite the success of the economic adjustment programme in removing many severe distortions in the Jordanian economy, the programme failed to restructure the economy towards more self-reliance, higher productivity and better ability to generate income, a senior banker said in a lecture this week.
Mufleh Aqel, regional director at the Arab Bank headquarters in Amman, told his audience that most of the policies for consolidating the supply side of the economy, such as higher exports and lower local consumption, have met internal and external hurdles. Consequently, he said, the economy could not register any noticeable growth or an increase in the gross domestic product and the Kingdom continues to depend on outside financial sources to finance the development.
The well-known banker mentioned several negative outcomes and side effects which resulted from the strict implementation of the adjustment programme. Topping the list was the attempt by the state to narrow the budget deficit through higher revenues from taxes and fees. “This has led to consecutive price rises and a drop in overall consumption due to the decline in purchasing power,” the lecturer said. “Consequently, active demand fell and the country entered a period of recession which is still deepening until now.”
The lecturer indicated that the deepening recession caused widespread poverty and unemployment which though officially estimated at 15 per cent, is seen at a high of 27 per cent according to estimates based on field studies. Another point raised by Aqel was the size of indebtedness which, despite a slight drop, did not decline by the anticipated amount. “The fall was not a result of implementing the adjustment programme,” he indicated. Aqel said a re-evaluation of the achievements for the years 1996-1998 show that the programme has failed to bring economic growth to targeted levels. He indicated that there was no growth at all when a 20 per cent growth rate was expected over the three years. According to the senior banker, even the nine per cent average growth recorded from 1992 until 1995 was not a result of the adjustment programme.
The lecturer blamed the strict implementation of the financial and monetary policies, which are the main pillars of the programme, for deepening the economic recession. He explained that as interest rates were repeatedly pushed up to high level, demand for credits went down and investments declined. Furthermore, the high interest rate reflected in higher production costs and, consequently, higher prices and inflation.
Aqel emphasised that the policies of the programme based on encouraging exports and openness to the outside world did not succeed in bringing a noticeable increase in exports. “As such, the deficit in the trade balance stayed at the same level,” he said noting that due to higher living costs and the diminishing social role of the state, unemployment is deepening and poverty is widening. “All of this leads us to say that the adjustment programme has achieved the easy part of financial and monetary stability and helped avoid a much worse situation than the one we passed through,” he indicated.” The real side of the economy did not respond as aspired and that led to high social cost.”