Dr. Rima Khalaf
Address to the Washington
Institute for Near East Policy
September 25, 1996
Dr. Satloff,
Distinguished guests,
It is a pleasure to be with you here to day to share some thoughts on Jordan's achievements thus far, our vision and aspirations and on the challenges that continue to face us.
Allow me to start with a rather straight forward notion: our social and economic objectives are to see our people lead full and productive lives, to enhance their quality of life and their interaction with and contribution to the world community in the economic, social, political and cultural spheres.
Although the notion is rather straight forward, the task at hand has never been an easy one, transcending as it does the simple and sometimes deceiving concept of economic growth. Experiences of other developing countries have proved time and again that increasing economic growth--important as it is--does not necessarily translate itself into development. Rather, it could be to the contrary. As the recently unveiled World Development Report illustrates, growth can be jobless, ruthless, voiceless and futureless. We in Jordan are fully cognizant of that, and are therefor striving to achieve much more. The growth that we seek is one which leads to more employment, a more equitable distribution of income, one that promotes democratic freedoms and enriches cultural heritage, one that is sustainable and that protects and enriches the environment.
Although our objective appears to be purely economic in nature, we realized some time ago that the means to achieve that objective are not necessarily so. Economic tools alone would be too limited and deficient to achieve such an ambitious objective. That is why we adopted a more wholistic approach as we developed and articulated a comprehensive model for development, encompassing three distinct yet interlinked components. The first is an economic reform program that is aimed at liberalizing and modernizing the economy, making it more competitive at the regional and international levels and integrating it with the world economy. The second component is a political reform program that enhances public participation in decision-making at all levels and one that consolidates democratic practices. The third component is a reform of the external relations systems aimed at replacing wars with peace, belligerence with coexistence, and apathy with cooperation for the benefit of all.
Let me for the time being, skip over the economic element and begin with the second and third components.
Under the political component of Jordan's model, we launched a daring and bold political reform program that can be considered as unprecedented in our region. We pursued a policy of inclusion which enables all political forces in the country to operate legally. They do so as part of a national consensus that advocates pluralism at all times and the pursuit of political objectives through peaceful means. This program has resulted in major achievements including the legalization of political parties, an independent parliament, one of the freest press in the Arab world and a human rights record that is unparalleled in the area. Though there is no one correct or perfect model of democracy, and though Jordan's process of democratization is still a nascent one, the country has been successful in broadening popular participation in the decision- making process in a meaningful way at the political, economic and social levels. Needless to say, no meaningful human development can take place without such participation in the decision-making process; and these two elements are needed if economic prosperity is to be achieved.
The other component that I would like to address relates to regional politics. Jordan realized fairly early on that in the context of comprehensive peace, warm relations between parties of the region can translate into economic activity and prosperity in the region. We were the first Arab country in the Middle East to sign a full-fledged treaty of peace with Israel since the Madrid peace process started. We were pioneers in signing the peace treaty not only because peace was a strategic objective for Jordan, but because we believed that would facilitate and expedite the process and the objective of comprehensive and lasting peace in the region. For Jordan, peace in the Middle East means much more than a mere end of the state belligerence between the various parties. It means an acknowledgment of a shared destiny among former enemies and a common struggle to better the lives of our peoples. Notwithstanding the risks, such a qualitative peace provides tremendous opportunities for development for each of the countries involved and for the region as a whole.
Many are those who maintain that as countries make the transition from war to peace, they move progressively along a spectrum that takes them from belligerence to a peaceful coexistence that is characterized initially by skepticism but subsequently by apathy; and then from peaceful coexistence to cautious cooperation; and then--and as trust develops--they move towards proactive cooperation.
Jordan, in its peace treaty with Israel, decided to altogether skip the two middle stages and opted for consolidating a level of cooperation that could form a nucleus for a more comprehensive regional development. Accordingly, not only did we actively participate in the multilateral track of the peace talks but we signed a number of bilateral agreements with Israel that covered almost every aspect of cooperation, be that economic, social or cultural. We believed that three elements needed to be in place if the causal relationship between development in Jordan and regional cooperation was to materialize:
First, that the peace process on the other tracks will not be impeded but will, on the contrary, be expedited to reach on early comprehensive settlement to the conflict; second, that the international community will realize the importance of setting such a model for regional cooperation and will not fail to support it; third, that Israel will see the benefits of this approach and will make sure that every effort is made to make it bear fruit.
Given the discrepancy in the levels of economic development between Jordan and Israel, we have taken great risks in pursuing such a model of cooperation. But we were keen--perhaps more so than anyone else--to guarantee a future for the region that is free of hostilities by removing all seeds of possible future conflict. We have tried to safeguard peace by creating vested interests for all the parties in such a peace because only then can suspicions can be replaced by more than mere peaceful coexistence. We want to present a model that will steer the region towards prosperity, and that can make each country in the region better off, and one that would make the region as a whole more competitive in the global economy. But in pursuing that objective, we were not unaware of the grave dangers that a failure of such a model can have on all those concerned.
As you are very well, our economic reform program which started in 1989 was interrupted shortly thereafter by the Gulf war. Not only did our program come to a halt, but our economy was subjected to severe shocks. Gulf markets--our major market for agricultural products-- closed in the face of Jordanian exports, thereby adversely affecting production, employment and income in the agricultural sector. Sanctions against Iraq drastically reduced our biggest market for manufacture products; hence industry and export earnings suffered badly. In addition, more than 300,000 Jordanians--some 10 percent of the population--were forced to return to Jordan from the gulf overnight, resulting not only in an additional burden on the meager resources of the budget as we struggled to supply these returnees with the necessary social and infra structural services, but it also deprived Jordan of a substantial part of its major source of foreign currency: that is remittances of Jordanians working abroad. All this caused unemployment to soar to an unprecedented level of 25 percent.
The new realities and hardships led to a rethinking of our economic strategy. Having lived the real dangers that can result from a highly protected economy dependent to a large degree on a small number of regional markets for its products, manpower and foreign exchange earnings, we decided to open up the economy, liberalize our systems and diversify our economic relationships as quickly and as efficiently as possible. We therefore launched a new reform program with unwavering determination and this time with a new vision and a perspective, enriched by a painful experience.
The new program is based not only on macroeconomic reform but on reducing the budget deficit and the current account deficit. It also places more emphasis on a complete rehabilitation of the economy and strengthening the base upon which development could be sustained. We liberalized our trade system, reducing tariffs and rationalizing tariff schedules along with removing all non-tariffs and barriers to trade. We have applied for membership in the World Trade Organization, and we will soon conclude an association agreement with Europe. Accordingly, our trade laws and regulation have been simplified in line with international practice and with Jordan's objective of further economic liberalization.
Realizing also that sustainable development requires the ability to continuously create new jobs and to effect a transfer of modern technology, our program also focuses on enhancing the economy's ability to attract and retain foreign investments. Hence we worked hard to make our investment environment more conducive to business, enacting new laws that are transparent and investor-friendly. Those included legislation on income tax, encouragement of investments, free zones and a new companies law. In addition, we streamlined procedures and implemented a all encompassing program to enhance the efficiency of public services. By 1994, our economy was one of the most liberalized and open economies of the region--attested to by a recent publication of the Heritage Foundation.
The reform of the business and legal environment continued in 1995 and 1996, and saw the addition of a new component: privatization. In this domain, we started a process of selling government shares in public share-holding companies and in corporatizing and privatizing public enterprises which are concentrated in the infrastructure sector, namely transport, electricity, water and telecommunication. We have made huge strides in the telecommunications and energy areas not only by converting our public enterprises into companies but also by enacting new laws that enable private sector delivery of services and allow for enhanced competition. In the domain of transport and water, the government is currently studying the possibility of entering into a series of management contracts with private sector firms.
I have so far touched on some though definitely not all of the components of our reform program which also includes reforming financial institutions and banking, and the stock exchange, among others.
The question that poses itself at this stage is: "did our program work?" According to the traditional yardstick of economists, not only was the program successful, it did wonders. Let me cite some numbers here. Our economy has sustained a real growth rate of 6 percent annually since 1992. Unemployment, though still high at 15 percent, dropped ten percentage points from 25 percent. Our budget deficit was reduced from 19 percent to 4 percent and the current account deficit to less than 4 percent in 1995. Inflation was contained at less than 4 percent over the past three years. Exports grew by 25 percent in 1995 and are expected to continue to grow by 9 percent this year. Our performance was described by international financing institutions as nothing short of exemplary.
We were hoping that the reform package encompassing proactivism on a regional level and political and economic reform on a domestic level would propel Jordan to a new stage of development. Throughout, the well-being of the Jordanian people has been at the core of all these reforms. Jordan cannot be accused of not having done its homework. In fact, we moved as fast as we possibly could on all three fronts so that Jordanians may begin to feel an improvement in their day-to-day living. And although we have made huge strides that make the future more promising, the present is still not as comfortable as we would like to be. The riots of August, limited as they were, indicated that the overall economic performance fell short of aspirations. What went wrong? Were the expectations too high or was our three-pronged program not yielding the anticipated results? The truth lies somewhere in between. People's expectations-- particularly after the signing of the peace treaty with Israel--were indeed elevated by statements of strong support by world leaders. Those statements were understood as promising much more than what actually materialized. In that context, and despite the good macroeconomic performance, the fact remains that 15 percent of Jordanians are unemployed and one fifth of the population lives below the poverty line. Moreover, per capital consumption declined by more than ten percent over the past three years.
In order to understand this inconsistency, it is important at this juncture to examine to what degree the various components of our program were successfully implemented.
Few are those who question the validity and effectiveness of our political reform program. The regional component is subject to many variables that are obviously beyond the domain of the Jordanian decision-making process. As for the economic reform program, by all attestations, it was soundly designed and successfully executed. Nonetheless, a number of factors mitigated its effects and dampened its desired socio-economic results:
There is no denying that transitional periods such as the one we are passing through are difficult. Accordingly, the pace and intensity of reform represent a trade-off between the present and the future. We in Jordan have made our choice: the future. Undoubtedly, support by the international community for our serious domestic effort is essential to a further deepening of the reform and shortening of the transitional period.
It is perhaps a matter of debate whether it is more beneficial for a country to embark upon three reform programs simultaneously--such as Jordan did--or whether regional cooperation should only be delved into once real progress is achieved on other political fronts such as the Syrian-Israeli track and the Palestinian-Israeli track. Jordan opted for the first option in order to have more impact and to maximize on the catalytic role that its own actions can have in serving the interest of comprehensive regional peace.
What follows from the simultaneous implementation of the programs is convergence of the different interest groups that by definition oppose each of these reforms for their own motives. In the case of Jordan, the different interest groups opposing the three processes of political and economic reform and regional cooperation can converge in a manner which if unchecked could create a critical mass, postponing one or more of the three elements cited above.
Another important factor impacting the effectiveness of the reform is that the results do not depend on us alone but are influenced by regional factors and other players. Those factors are not only limited to statements which undermine the positive atmosphere for attracting investments but also extend to the lack of positive actions on other fronts. One example of how such actions impact the results relate to our economic relations with Israel. Although we signed a number of bilateral agreements with Israel we are still unable to export to that country beyond a mere trickle of products. The same applies to our economic relationship with the Palestinians where we have not been able to our economic relationship with the Palestinians where we have not been able to benefit mutually from trade with the Palestinian National Authority (PNA) due to restrictions imposed by Israel under security pretests. The job creation and economic activity that were expected to accrue from such agreements have therefore not materialized, and no trickle down effects have been felt.
Through its serious economic and political reform and its proactivism on a regional level, Jordan today presents an ideal model for the region that deserves support by the international community not merely for the sake of Jordan but for the potential it represents for the region.
In our case, such support has not been as forthcoming as one would have expected. It is ironic that the support which Jordan needs and deserves as it passes through this critical transitional period, pales in comparison to the potential benefits that could accrue to all those involved if a model such as that developed and nurtured by Jordan succeeds. Conversely, if the model that Jordan has established fails, the negative repercussions will be disproportionately detrimental, not only to us, but to all those that vested interests in the region.
The Jordanian people, through their elected representatives in parliament, have opted for a program of peace. Therefore Jordan's commitment to the implementation of the program will continue. Needless to say, support of the international community remains crucial to the success of such an effort.