The fallout from rising prices in Jordan

The political effects of rising prices 3/3
Yusuf Mansur

Jordan's enduring dilemma of the dual challenge of endemic high poverty and unemployment rates is joined by a third equally dangerous contingent, inflation, especially as global food prices rise. The political impact and reactions to this third test of the political-economic environment are hard to gauge.
Ordinary Jordanians have become numb to the double-digit poverty and unemployment rates (around 14 percent each). These rates have hovered steady over the last decade without any marked improvement. Hence, there is a settled realization in the Jordanian psyche that little can be done. Past and present promises of improvement and a departure from what has sadly become recognized as the status quo quickly hit the receptacle of unfulfilled dreams and soon became forgotten. The frequent changes of guard, the similarity of promises from one cabinet to the next and their dismal achievements have helped douse the possibility of emergence from the catacomb of policy ineffectiveness. Blame, played like a broken record, is fashionably but quietly heaped upon those that preceded the incumbents.

Inflation, however, is a new phenomenon and a challenge that increases the severity of the other two. The consumer price index rose by almost 11 percent in the first quarter and an inflation rate of 10 percent is expected for 2008. Not only are prices too high in Jordan, which according to some sources is the region's most globalized economy, but the price increase is due to rising food and energy prices, thus severely impacting the poor. Moreover, in a country where income has not grown while income disparities have, inflation erodes the purchasing power of all. Since inflation is mainly in food prices, low income groups, the poor and the unemployed will be further immiserized at a time when the majority of the people have not benefited from the fruits of the economic growth of the past four years. As in the rest of the world, the gap between rich and poor has risen in Jordan.

In addition, unlike poverty and unemployment, inflation rises fast and knows no ceiling. The inflation being imported and thus beyond the control of the central banks of developing and transition economies like Jordan's, highlights the foibles of governments that espoused globalization and rushed into freeing trade without buttressing and protecting the local economy from the risks of globalization.

The nagging question in the streets is quite sophisticated: how could bureaucrats, elected or appointed--in the case of Jordan the latter--believe that they would possess the necessary acumen and resources to muster the rewards and survive the ever-rising globalization risks when they are unable to manage Jordan's small economy. Contrary to the supply-side view, it is this question that has trickled down to the poor and laypeople that had never pondered macroeconomic issues, nor wealth and welfare. The upshot is manifest discontent and rising poverty. Consequently, and fearing embarrassment, no new study is being commissioned of the poverty line in Jordan, which has not been updated since 2002.

The dangerous tripod of inflation, poverty and unemployment has not gone unnoticed by the six-month old Jordanian cabinet, which captured the sympathy of all Jordanians for having arrived at the scene with the three problems already out of Pandora's box. However, such sympathy may soon turn into apathy if inflation continues to bite into the livelihoods of Jordanians; last year the average household consumed 20 percent more than it earned, not a sustainable phenomena.

Poverty pockets, which are highly concentrated in the rural areas, are assured through spontaneous injections and official visits that relief is on the way. Attempts by the new cabinet to curb inflation by encouraging imports of previously protected commodities, removing sales tax and customs on certain imports, establishing parallel markets and better informing the public, have held temporary relief and are costly to maintain at a time when the budget deficit is at an all time high and the budget itself is in excess of 50 percent of GDP.

Jordan, a country where security and stability are prized and prioritized above all else, will surely survive the era of this unholy trinity. The political dimension of such challenges has translated into an obvious dismay that has materialized into whispered, albeit heated gossip and accusations at the street level and in the parliament. It is, therefore, safe to say that the riots seen in Egypt, Yemen and other countries will not be replicated in Jordan. Furthermore, since bread is still affordable, the Ma'an riots of the 1990s are not likely to be repeated.

As in the past, when the challenges become too foreboding, scapegoats will be found and officially sacrificed. Concomitantly, there is hope within official circles that 2009 will be a deflationary year, that globalization, which brought forth inflation, will on its own resolve the problem by deflating prices domestically and that the year of rising prices will be soon forgotten: a curious wish by the neo-liberals for Adam Smith's "invisible hand".

Yusuf Mansur is the managing partner of the Envision Consulting Group (EnConsult) and former CEO of the Jordan Agency for Enterprise and Investment Development. - Published 29/5/2008 © bitterlemons-international.org