The Fiscal Politics of Rebellious Jordan

by Pete Moore | published June 21, 2018

Over the first weeks of summer, a surge of popular protest reminded the world that political contestation is alive and well in the Hashemite Kingdom of Jordan, a country often described as a haven of tranquility in the strife-torn Arab world. It started with a call for a June 6 general strike by a coalition of professional associations and labor unions in opposition to the regime’s proposed amendments to the income tax law. But when the moment arrived a range of groups, formal and ad hoc, transformed it into days-long nationwide demonstrations demanding repeal of the tax law, reversal of price hikes on fuel and electricity, and dismissal of the prime minister.

In response, and after some initial hesitation, King ‘Abdallah II sacked the whole cabinet of Prime Minister Hani al-Mulki and appointed Minister of Education ‘Umar al-Razzaz to take over. It was a dramatic victory for the protesters, who had mounted a widespread and sustained campaign against the proposed tax reform and concurrent reductions in price subsidies. Amid chronic unemployment, stagnant wages, widening poverty, increased educational inequality and gross corruption, the regime was effectively asking Jordanians to shoulder more of its financial burden and pay more of its debts.

The protest movement caught many by surprise. Yet rebellious socio-economic grievance has been central to politics in Jordan for decades, if not since the formation of the state in 1921. The troubles that produced the 2018 demonstrations are likewise problems of long standing. Common explanations for these conditions point the finger at one of three culprits: scant rainfall and resources, the kingdom’s “tough neighborhood” and the International Monetary Fund. Each interpretation grasps at the truth but all fall short.

Three Stories with a Common (and Mythical) Moral

The rainfall story was bequeathed by British observers of Transjordan writing in the 1920s and is recycled in numerous official biographies of the Hashemite kings. [1] It goes something like this: Jordan is a barren land with no natural bounty, baking under a relentless sun, whose leaders are forced to look to the outside world for assistance. Such claims ignore the fact that in the more than 90 years since the monarchy was established, the economy of Jordan has regularly seen globally high growth rates, with billions in capital pumped in and out of the country. Throughout this time, a narrow class of wealthy merchants has enjoyed unmediated, monopoly profits. A lack of resources need not be a curse—no more than a glut of resources need be. [2]

The “tough neighborhood” argument descends from the real burdens entailed by the waves of Palestinian refugees fleeing wars with Israel (1948 and 1967) as well as those Palestinians expelled from Kuwait in the wake of the 1990-1991 Gulf war. Regime loyalists and analysts typically also mention the flow of Iraqis into Jordan in the aftermath of the 2003 US-led invasion and occupation of Iraq. In general, this rationalization depicts the Hashemites as helpless amid regional pressures instead of unpacking how and why they responded. It also ignores the healthy infusions of capital that accompanied the refugee influxes. Today, the argument supplants Palestinian refugees with Syrians escaping the depredations of Bashar al-Asad’s forces. The problem with this explanation is that the regime abandoned investment in Jordanian society long before the Syrians arrived.

Blame is most popularly directed at the IMF, whose conditionalities, requiring that Jordan cut subsidies to receive new loans, for instance, are viewed as determining rather than complementing regime policies. But more on the IMF below.

What all these arguments share is the assumption that Jordanian social dislocation and popular anger is caused primarily by external forces, a narrative the monarchy’s supporters are quick to embrace. Historical context exposes that assumption as a myth. Since the 1980s, the political-economic interest of the regime and its allies, with a big assist from Washington, has produced a latent fiscal crisis. The politics of fiscal weakness, far from being a challenge to the Hashemite monarchy, have evolved into a strategy of rule. Jordan’s dependency on US, Israeli and Gulf Arab support is not something to transcend but rather something to manage. This strategy requires that Jordanian society bear the costs.

From Guns and Grain to the IMF

One component of Jordan’s fiscal crisis hearkens back to the rainfall story. Important work by scholars on the origins of the Hashemite monarchy convincingly shows that the exigencies of World War I, the post-war settlement and incipient starvation were the factors that compelled the people of Transjordan to accept a new ruler from the Arabian Peninsula. A combination of British aid and a British-funded military, known today as the Jordanian Armed Forces (JAF), sealed the deal. Guns and grain, not King ‘Abdallah I’s charisma, were the foundations of the fledgling state. [3] By 1948, swathes of the population were bound to the regime by employment in the JAF and the king had crafted a ruling class of rural landowners and urban traders. Though these elites supported Hashemite rule, they refused to pay for it, ample rain or none. There were efforts at fiscal strengthening in the 1950s and 1960s, but none survived the rural-urban elite alliance’s intransigence.

The civil war in 1970, pitting the monarchy against the fighters of the Palestine Liberation Organization, many raised in the refugee camps, would push these arrangements in a new direction. While King Hussein’s army vanquished the fedayeen, and kicked out the PLO, the fact that the rebels easily commanded the country’s major cities worried the palace. The period after the civil war coincided with massive capital inflows from the Gulf (particularly after the 1973 oil embargo), making possible a significant expansion of the Jordanian state. The bureaucracy grew; Amman morphed from a sleepy town into a regional capital; a social safety net appeared; and higher spending on education yielded one of the world’s fastest literacy rises. In fact, the country’s growth rates and returns on investment were among the highest in the world, placing resource-poor Jordan in the category of “emerging market” along with South Korea, Singapore and Chile. [4] While impressive, these gains were of the file-and-forget variety: build more schools, boost enrollment, pave more roads, increase consumption. Upgrades would require greater public-sector support, supervision and planning—precisely the types of policies that other resource-poor countries like South Korea were pursuing around the same time. The political problem in Jordan was that the monarchy’s ruling coalition was happy not to pay for these gains and the monarchy itself was loath to redirect military spending to more productive ends.

The country’s Gulf financing began to dry up by the mid-1980s, but Jordanian leaders had already doubled down. Instead of capturing the growth for productive public investment, the authorities began starving the very economic advances made during the 1970s and early 1980s. The regime ignored calls for enhanced public revenue and instead took a turn to debt financing. In other words, the state procured a series of European and domestic loans, not to sustain investment during recession, but to feed the maw of the JAF. Most disastrously, officials drastically cut capital investment by the public sector, a gaping hole in the ledgers still apparent today. The public sector’s fiscal undoing degraded oversight and fostered corruption, particularly in the financial and insurance sectors, forcing multi-million-dollar public buyouts, most spectacularly in the 1989-1990 Petra Bank scandal. Weak regulation and supervision allowed Petra Bank’s president, Ahmad Chalabi, to transfer hot money in from Iraq and extend fraudulent loans to his friends and front companies. Chalabi was eventually convicted in absentia, but officials in the Central Bank pulled similar moves, clandestinely selling the state’s gold reserves to generate cash and stave off crisis. There was never any investigation. Meanwhile, traders and merchants close to the Royal Court enjoyed unprecedented opportunities for profit from Jordan’s support of Baathist Iraq during its war with Iran. [5]

The enduring driver of fiscal crisis was King Hussein’s obsessive military buildup. The JAF’s ranks swelled, as did those of the newly empowered secret police (the General Intelligence Directorate or GID), as the regime spent hundreds of millions on high-priced weaponry. In concert, the JAF drew closer to the Pentagon. Throughout the 1980s, military spending hovered at around 30 percent of the budget, far exceeding social investment. By 1990, according to World Bank data, Jordan ranked second in the world in terms of military/security employment as a percentage of the labor force, behind Iraq but ahead of North Korea and Syria. Eventually, officials were forced to admit publicly in 1989 that the state’s debt stood at over $8 billion (equal to 225 percent of the gross domestic product). Though much military budgeting goes unreported, observers estimated that King Hussein’s spending spree accounted for more than 50 percent of the total debt. These were the circumstances that prompted the regime’s resort to the IMF and then provoked the anti-austerity protests of April 1989.

The Fruits of Fiscal Crisis

IMF lending continued through the 1990s and into the early 2000s. The most recent program began in 2012. The details have shifted over the years but the emphasis on pruning the public sector has been constant. There has been no gesture at reducing military or security spending. In fact, the GID and parts of the JAF got more money when King ‘Abdallah II enlisted Jordan in the so-called war on terror. Neither has the regime tried to curb corruption, outside a few high-profile trials, or to hinder those moving hot money in and out of the country’s banks. [6] In these respects, IMF conditionality was complementary with regime policies in the 1980s and deferential to the regime’s prerogatives.

What was achieved by these international lending arrangements was comparatively light in the macro sense, [7] but still regressive. The regime tamed inflation, to a degree, while using the proceeds from unpopular privatization of public-sector assets primarily to pay off the older military debts. Efforts to increase domestic revenue avoided any direct or corporate extraction, instead settling in 1994 on a value-added tax, which drove up prices of basic goods for the poor and middle class while alleviating pressures on the urban wealthy. Meanwhile, Washington and an army of contractors went all in on Jordan. The US Agency for International Development, fronted by NGOs and Beltway bandits, seeded so many failed economic development programs in the last 20 years it is hard to keep track of the acronyms. [8]

Once the country’s main trading and money laundering partner, Baathist Iraq, collapsed under the weight of UN sanctions and the eventual US-led invasion, the rot set in. Most indicative are the fates of education, employment and infrastructure. The country’s once high-achieving public education system has declined precipitously. Members of the ruling family have responded by opening outrageously priced private high schools and universities. Ministry of Education officials are left with band-aids. It is no surprise, then, that parents and students have turned to cheating to succeed on university entrance exams. The unemployment rate has been the highest or second highest in the Arab world for more than a decade. Neoliberal advocates applaud the fact that more and more Jordanians are taking their first jobs in the private sector. The problem, however, is that these jobs are often temporary contracts bereft of social insurance protections. Public control of urban infrastructure has also been abandoned, with private investment now resulting in bubbles of conspicuous consumption in West Amman surrounded by crumbling vestiges of the 1970s. [9]

The 2018 protests are the fruits of a Hashemite strategy: protect military spending, pamper elites and open the public sector to plunder. At every moment of crisis, the regime has recommitted to this strategy rather than rethink its approach, rebuild its base and respond to the needs of the majority of the population. Rain and a bad neighborhood are secondary issues at best. The IMF also had little to do with the origins of the present dilemma, though it can be held responsible for the lack of improvement since then.

None of which is to say that the Hashemite strategy operates in a vacuum, without external support. Particularly since Jordan signed its cold peace with Israel in 1994, and then picking up again in 2001, Washington has underwritten the project with military cooperation and financial aid.

The USS Jordan

Today, Jordan is analogous to a US aircraft carrier. The US military keeps thousands of soldiers in the country and treats Jordanian bases as its own. In July 2015, for example, Defense Secretary Ashton Carter arrived at a Jordanian air base and—in an embarrassing violation of protocol—published photos showing that no civilian Jordanian representative was there to greet him. Through what is sometimes referred to as the Pentagon’s slush fund, the US Army spends hundreds of millions in the country, much of it contracted through the leadership of the JAF. By this measure, the US Army is Jordan’s largest foreign direct investor. Less public is the CIA’s presence and support, but no one disagrees that Langley’s largesse is also huge and completely independent.

Still, the billionaires of resource-poor Jordan have amassed enough private wealth to purchase Saudi shares in the Arab Bank, the country’s most important financial institution. [10] Apparently there is plenty of public money, as well, to spend in pursuit of less than productive ends. One of the welfare institutions from the 1970s, the Social Security Investment Fund, is reportedly being used by the authorities to bail out failed development projects. [11] And according to declassified data from the US military (given to me), the monarchy expanded the ranks of the JAF by 10,000 to 15,000 soldiers since 2013. So much for the need to cut back on spending.

In the face of these imperial and monarchical interests, calls for a “new social contract” sound good but are hollow. Nothing short of a fiscal revolution could alter the country’s trajectory.

Endnotes

[1] Nigel John Ashton, King Hussein of Jordan: A Political Life (New Haven, CT: Yale University Press, 2008), p. 3.
[2] Marcus J. Kurtz, “The Social Foundations of Institutional Order: Reconsidering War and the ‘Resource Curse’ in Third World State Building,” Politics and Society 37/4 (2009).
[3] Tariq Tell, The Social and Economic Origins of Monarchy in Jordan (New York: Palgrave Macmillan, 2013).
[4] World Bank, World Development Report 1985 (New York: Oxford University Press, 1985), p. 135.
[5] Pete Moore and Christopher Parker, “The War Economy of Iraq,” Middle East Report 243 (Summer 2007).
[6] See former Prime Minister ‘Ali Abu al-Raghib’s page in the Panama Papers for one way this operation works.
[7] Jane Harrigan and Hamed El-Said, Aid and Power in the Arab World: IMF and World Bank Policy-Based Lending in the Middle East and North Africa (New York: Palgrave Macmillan, 2009).
[8] Pete Moore, “QIZs, FTAs, USAID and the MEFTA: A Political Economy of Acronyms,” Middle East Report 234 (Spring 2005).
[9] Jillian Schwedler, “Amman Cosmopolitan: Spaces and Practices of Aspiration and Consumption,” Comparative Studies of South Asia, Africa and the Middle East 30/3 (2010), p. 30.
[10] Reuters, December 5, 2016.
[11] Al-Ghad, August 11, 2015.

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