When Arab officials descend on Washington this month for the annual IMF and World Bank meetings, the discrepancy between paeans to the liberal economic order and the demands of economic distress and conflict will become apparent once again. Some Arab central bankers and finance ministers will hail from countries wracked by civil war and insurgency (Iraq, Libya, Syria, Yemen) or the burdens of refugees and trade disruptions (Jordan and Lebanon). Others will represent countries struggling against mounting debt and economic change. (These include Egypt, Oman, and Saudi Arabia, among others).
Most Middle Eastern and North African countries need financial assistance, massive infrastructure financing, or humanitarian aid, and the IMF has four active programs in Arab countries totaling billions of dollars. Far from making recourse to the IMF only during times of severe economic crisis, Arab capitals’ relationships with the IMF have evolved to near perpetual dependency. Jordan has had eight IMF programs since 1989, often with one program beginning as another concludes.[i] Egypt in November 2016 negotiated its fifth IMF program -- a $12 billion facility. It is hard to imagine these countries freeing themselves from this cycle.
After decades of IMF financing, commitments to reform, and billions of dollars, what have these countries to show? Social indicators such as unemployment, poverty, and income inequality actually worsened in the majority of states that accepted IMF intervention through the 1980s and 1990s -- even in those states that “religiously” followed IMF prescriptions.[ii]
Is reform helping?
Three years before Egyptian President Hosni Mubarak was ousted, the World Bank’s Doing Business report ranked Egypt as the world’s top economic reformer.[iii] Yet behind all the growth and capital inflows, average Egyptians saw little benefit from the economic reforms praised by outside observers and investors. Just across the Gulf of Aqaba, Jordan’s economy has fared little better: The official unemployment rate stands at 18 percent.[iv] A third of Jordan’s population lives below the poverty line, and after years of fiscal consolidation, the country’s debt-to-GDP ratio sits precariously at 95 percent.[v]
Years of “reform” have arguably not made these countries or their societies more resilient, and in fact might have contributed to an undermining of social safety nets. In fairness, many of the region’s social programs have long been fiscally unsustainable, but all Arab countries have had implicit social contracts since their independence whereby the state provided a baseline of social welfare, with benefits including health care, education, subsidized food and energy, and often a government job.
The criticisms hurled from anti-Bretton Woods activists are not without merit, but without external pressure it is difficult to imagine governments reforming their economies on their own. Inefficiencies abound in MENA markets -- from anachronistic labor regulations to poor access to finance -- but nothing stands taller than government-subsidized energy. The International Energy Agency reports that in 2016 the Middle East, with just 3 percent of the world’s population, spent some 30 percent of the world’s annual $260 billion on fossil-fuel consumption subsidies.[vi] [vii] Regardless of the public’s expectations, these expenditures are wasteful, and in any event most of the benefits go to society’s richest.
The reputation of the Washington Consensus and its international implementers, the IMF and World Bank, has taken a beating since the late 1990s. The IMF often pushed one-size-fits-all recommendations on a diverse set of countries, and this has often fueled volatility, lengthened recessions, and expanded inequality. The global financial crisis of 2008-2009 and its painful hangover have dulled the edge of the Consensus, which is an informal set of policies introduced in the late 1980s espousing trade and capital account liberalization, deregulation, and restrained government spending. The liberal economic order has much going for it. But much of the Arab world seems poorly positioned to give more than lip service to the Consensus and the IMF’s mandates. This is especially true in the wake of the financial crisis, the Arab uprisings, and the emergence of the Asian Infrastructure Development Bank,[viii] seen by many in the less-industrialized world as an alternative to Western domination of global finance.
Economically stressed countries and the IMF often find themselves in awkward conversations: the IMF underscoring the need for higher taxes, fewer subsidies, and spending cuts, and recipient countries excusing themselves from pushing reform because of “regional security issues” or “restive publics.” Arab states such as Jordan, with more than a million Syrian refugees, can with some degree of truthfulness assert their precarious grip on stability. Egyptian politicians might argue their country is too big to fail.
This is not the end of the liberal economic world order in the Arab world or anywhere else. Even Marx and Engels pointed out in the Communist Manifesto that the market system is uniquely productive and had “accomplished wonders.” At the moment, those Arab states most desperate for funding have few other options, especially in an era of limited assistance from the wealthier Gulf States, but the dialogue must evolve. The largest funders of the IMF and World Bank -- the United States being the most significant -- have every right to expect their dollars to result in tangible reforms. Yet for the best parts of the Consensus to remain relevant, its recommendations should be flexible to accommodate local conditions. Otherwise, the same policies that helped pull millions out of poverty might be given little more than a polite nod.
The author is an employee of the United States Government (USG), which is funding his fellowship at the Wilson Center. All statements of fact, opinion, or analysis are those of the author and do not reflect the official position or views of the USG. The views expressed are the author's own.
[i] “The International Monetary Fund and Jordan,” Issues Paper, IMF, November 19, 2004.
[ii] El-Said, Hamed and Jane Harrigan, “Economic Reform, Social Welfare, and Instability: Jordan, Egypt, Morocco, and Tunisia, 1983-2004,” Middle East Journal, Volume 68, No. 1, Winter 2014.
[iii] http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Annual-Reports/English/DB08-FullReport.pdf
[iv] http://jordantimes.com/opinion/fahed-fanek/extended-families-tolerate-unemployment
[v] http://www.petra.gov.jo/Public_News/Nws_NewsDetails.aspx?lang=2&site_id=1&NewsID=334714&Type=P
[vi] Ball, Jeffrey, “The New Age of Renewable Energy,” The Cairo Review of Global Affairs, The American University in Cairo, Winter 2018.
[vii] “If Not Now, When? Energy Price Reform in Arab Countries,” Annual Meeting of Arab Ministers of Finance, IMF, April 2017.
[viii] https://www.foreignaffairs.com/articles/asia/2015-07-27/out-bretton-woods
