JORDAN: COPING WITH SLOWER ECONOMIC GROWTH

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84S00556R000200050003-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 20
• Document Creation Date: December 21, 2016
• Document Release Date: October 7, 2008
• Sequence Number: 3
• Publication Date: May 1, 1983
• Content Type: REPORT

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Directorate of
Intelligence
Secret
Jordan: Coping With
Slower Economic Growth
An Intelligence Assessment
State Dept. review completed
Secret
NESA 83-10!02
May l 983
321
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`y~E~\ Directorate of Secret
?~~, Intelligence
Jordan: Coping With
Slower Economic Growth
Chief, Arab-Israeli Division, NESA, on
This paper was prepared b Office
of Near East-South Asia Analysis. Comments and
queries are welcome and may be directed to the
Operations and the National Intelligence Council.
This paper was coordinated with the Directorate of
Secret
NESA 83-10102
May 1983
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CpcrPt
Jordan: Coping With
Slower Economic Growth 25X1
Key Judgments The economic boom that has contributed significantly to Jordan's internal
Information available stability since the mid-1970s is ending. The key factors that Amman has
as oj' 28 March 1983 counted on to sustain strong GNP gains probably will show little growth or
was used in this report.
decline over the next several years as:
? Worker remittances level off because of the slowdown in the Gulf
economies.
? Phosphate and potash markets remain soft.
? Arab assistance declines further in light of Iraq's financial problems and
the impact of the soft oil market.
The resulting foreign exchange shortfalls will prevent Jordan from meeting
its development goals. The rate of economic growth probably will slip to
just half the levels of the late 1970s.
Jordan's dependence on external aid will reinforce the King's reluctance to
take foreign policy measures-such as peace negotiations with Israel-not
supported by Saudi Arabia and his other financial backers. In the event
that Arab financial and political support to Jordan drops sharply, interna-
tional bankers would be unlikely to finance the entire shortfall. Amman
would then be forced to make very heavy and unpopular cuts in consump-
tion, investment, and imports.
If negotiations over the West Bank were opened, Hussein would probably
bow to longstanding East Bank jealousies of the Palestinians and avoid
arrangements that would impose economic burdens on the East Bank-
such as agreeing to support West Bank industrial development.
Hussein regards financial support as a sign of political support, and if he
joins the US peace initiative, he will expect a major increase in US
economic assistance.
Hussein's desire for domestic harmony and lack of interest in economic
matters will make him reluctant to incur the immediate political costs of
imposing painful cuts in consumption by devaluing, cutting subsidies, or
restricting imports of consumer goods in order to conserve foreign ex-
change. Instead, we believe he will curtail planned investment spending,
thereby aggravating Jordan's long-term dependence on external aid, and
try to increase borrowing from Western commercial banks.
iii Secret
NESA 83-10102
May 1983
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The economic boom and wave of labor migration to the Arab Gulf states
shortly after Jordan's civil war in 1970-71 have helped the King maintain
one-man rule over Jordan by diverting the energies of potential political
opponents, especially Jordan's large Palestinian population. The decade-
long boom, however, has also generated popular expectations of continued
prosperity that are bound to be disappointed in the coming years.
Nonetheless, we believe that Jordanians consider economic and educational
opportunities to be allocated in a reasonably equitable fashion. As long as
this belief holds, socially and economically deprived Jordanians are
unlikely to risk the political stability they have enjoyed since 1970 for an
improvement in their economic standing.
The government's budget and economic policies will increasingly become
the battleground for various interest groups seeking to protect themselves
from hard times. Hussein would probably allow an increase in the scope of
public debate over economic policy alternatives so long as the central
government's monopoly on power is not questioned.
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Jordan: Coping With
Slower Economic Growth
By the standards of most oil-poor Third World econo-
mies, Jordan has made remarkable economic progress
in the last decade. The development problems facing
Jordan since the oil price explosion of 1973/74-
allocating scarce domestic labor and finding uses for
plentiful and cheap capital-have been just the re-
verse of the usual constraints faced by less developed
countries (LDCs). Fueled by the inflow of funds from
the oil-rich Arab Gulf states, real GNP has risen
almost 13 percent annually since 1974, and per capita
income has reached over $1,400-well above the
world median (see figure 1).' Meanwhile, Jordan's
civilian debt service ratio has been kept at roughly 5
percent, far below the 25 percent or more common to
non-OPEC LDCs.
This strong economic performance contrasts sharply
with the period following the 1967 Arab-Israeli war
when problems associated with the influx of West
Bank refugees and terrorist Palestinian activities put
the economy in a tailspin. Expulsion of radical Pales-
tinian groups from the country in 1971 and the
drafting of a new development plan that called for
substantial expansion of both government economic
programs and private-sector activity set the stage for
economic expansion.
Funding for the economic surge has flowed from
Hussein's ability to supply labor to his oil-rich Gulf
neighbors and to tap Arab funds as a byproduct of
Jordan's role as a key participant in the Arab-Israeli
dispute. Since the resurgence in oil prices in 1973/74,
the large pool of unemployed Jordanian labor has
disappeared as newly rich Gulf Arab oil producers
scrambled to hire Jordanians to man major domestic
development programs. Between 1973 and 1980
roughly 250,000 Jordanians departed to seek their
fortunes in the Gulf. Remittances from these mi-
grants probably exceeded $1 billion in 1982, by far
Jordan's largest source of foreign exchange earnings
Figure 1
Jordan: Real Growth Rates
of GNP and GDPe
-30 1967 70 75 80 82b 83~
aIn 1967 and 1968 estimates include West Bank.
b Estimated .
~ Projected.
The Jordanian work force is highly skilled and among
the best educated in the Gulf. Seventy percent of
Jordan's adults are literate-more than double the
1960 ratio and more than any other Arab country
except Lebanon. Jordanian and Palestinian workers
hold a disproportionate share of the white-collar jobs
available to foreign workers in the Gulf states. Jordan
benefits heavily from the success of Palestinian work-
ers. Many of them bank their earnings on the East
Bank because there are no Arab banking institutions
on the West Bank.
(see figure 2)
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Jordanian Overland Export Routes
ANKARA
West Bank
(lsraeti occupied -
slatus to be determined),
" DAMASCUS
Megarin Dam ~
(proposed site)
Boundary repre entation ~s
not necessarily authonlative.
*BAGHDAD
Iraq?Saudi Arabia
Neutral Zone
# RIYADH
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Figure 2
Jordan: Worker Remittancesa
Billion US $
l i i i i ~ t i i i ~ i i i
0 1970 75 80 82b 83~
a According to official statistics, which understate the true magni-
tudes; the US Embassy, for example, estimates the true 1981 figure
for inward remittances at $1.3 billion.
bEstimated. cProjected.
In response to the Camp David accords, an Arab
League summit convened in Baghdad in November
1978 and voted to grant Jordan $1.25 billion annually
for 10 years to support its role as a frontline confron-
tation state against Israel (see table 1). This aid
covered virtually all of Jordan's 1981 current account
deficit (excluding official transfers) of $1.3 billion.
The Baghdad agreement superseded similar, but less
generous, Arab summit aid commitments of $324
million reached at Rabat in the wake of the 1973
October War
In return for King Hussein's strong support for Iraq in
the Iran-Iraq war, President Saddam Husayn of Iraq
has given Jordan aid over and above Iraq's Baghdad
commitment of $186 million. Jordanian businessmen
also have made large profits by acting as middlemen
for Iraqi importers.
The pull of these outside forces on Jordan's economy
has been so strong in recent years that one Jordanian
entrepreneur declared in a newspaper interview that it
would have been nearly impossible for Jordanian
Table 1
Jordan: Prospects for
Baghdad Aid in 1983
Donor
Annual
Commitment
Status
Saudi Arabia
357.14
Likely to pay
Kuwait
196.43
Likely to pay
Libya
196.43
Defaulted
Iraq
185.71
Defaulted
United Arab Emirates
142.86
Slow payer
Algeria
89.29
Defaulted
Qatar
82.14
Slow payer
Total commitments:
1,250
Maximum 1983
receipts:
780
businesses not to make money. In 1981 over 70
percent of GNP was derived from exports of goods
and services-two-thirds of these went to Arab coun-
tries
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Constraints to Development
Jordan's lack of natural resources, small population,
and limited access to transport routes hinders manu-
facturing and agricultural development. Water scarci-
ty is a major constraint on both agricultural output
and improvement in living standards. Most of Jor-
dan's territory consists of desert too remote from
water sources to be irrigated economically. Net food
imports accounted for two-thirds of total food con-
sumption in 1981 and cost over $370 million-one-
fourth of the current account deficit. Water for
household use is also limited. Even in the capital city
of Amman some areas receive piped water only once a 25X1
week 25X1
Jordan, with no proved reserves of oil or coal, is
almost totally dependent for fuel on oil imported via a
Saudi Arabian pipeline. Oil payments absorbed about
12 percent of GNP in 1981. Although large oil shale
reserves exist, they are not economically exploitable at 25X1
current or projected oil prices. Even if oil prices rise,
current techniques of processing the shale would
require large amounts of scarce water
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Most raw materials for manufacturing or other indus-
trial activity must be imported. Commercially exploit-
able mineral deposits are limited to phosphate and
potash. No commercially exploitable deposits of such
key industrial ores as iron or copper are known to
exist.
Jordan has access to few natural trade routes and has
cut itself off from the most convenient one-transit
through Israel. Before 1948 Jordan held a peripheral
place in a regional economy centered in Palestine. It
exported crafts and some agricultural products west-
ward either for consumption or reexport via Pales-
tine's ports in exchange for manufactured goods.
Since 1948 Jordan has shut itself off from both Israeli
markets and transport routes by adhering to the Arab
boycott of Israel.
Jordanian goods traveling to western markets by sea
must be shipped through Jordan's sole port of Aqaba
on the Red Sea, adding one to two days to the time
needed to ship goods via Israel. Exports going over-
land to Baghdad or Jidda-the nearest big Persian
Gulf markets-must travel 280 and 500 kilometers
(km), respectively, mostly through desert terrain.C
Jordan's small population-2.3 million inhabitants in
1982-makes economies of scale difficult to achieve
in manufacturing. Many local manufacturers must
produce at inefficiently low levels unless export mar-
kets are available. Otherwise, they require tariff
protection to compete with larger foreign manufactur-
ers who have lower per unit costs. This is particularly
true for industries such as cement manufacturing,
which Amman has counted on for strong growth.
As a result, Jordan's real GNP growth rates of
13 percent annually over the past decade have result-
ed chiefly from inflows of funds from Jordanians
working in the Persian Gulf. Worker remittances
accounted for more than one-fourth of the total
increase in GNP, and its share of GNP at factor cost
increased from 4 percent in 1972 to over 20 percent in
1981 (see figure 3). Growth of all services generated
two-thirds of the increase in GNP between 1972 and
1981. Manufacturing growth, in contrast, accounted
for just 11 percent of the increment to GNP.
Development Strategy
The current 1981-85 Five-Year Development Plan is
the best indicator of where Jordan's planning-con-
scious government hopes to take the economy. Its
principal aim is achieving real GDP growth of
11 percent annually. This would be accomplished by
stepping up the growth of mining and manufacturing
and reducing the economy's reliance on services. This,
in turn, would cut the trade deficit to just under one-
half of GDP, lessening the government's need for
foreign aid.
The central government encourages the growth of free
enterprise, and all of Jordan's five-year development
plans have relied heavily on private-sector initiatives.
Amman, however, controls a few industries that it
considers related to national security, such as oil
refining, or that require investments too large for the
private sector to finance, such as phosphate mining.
The current plan calls for investing about $11 billion
over five years; two-thirds is to come from the public
sector. Of the government's total 1981-85 income,
domestic revenues-mainly taxes-are slated to con-
tribute just under half. Domestic taxes are largely
derived from customs receipts and would suffer dis-
proportionately from any cutback in imports. The
remaining $5.5 billion is to be derived from foreign
borrowing and government-to-government grants.
The plan calls for over $2.5 billion to be invested in
mining and manufacturing by 1985-nearly one-
fourth of total scheduled investment (see figure 4).
They are the only sectors slated for faster growth
under the current plan than was achieved in 1976-80
and are targeted for nearly 18-percent annual growth
(see figure 5).
Amman had hoped banks in Jordan would provide the
funds for investment, but they have proved reluctant
to finance major industrial expansion projects, prefer-
ring instead to make shorter term, less risky loans to
finance trade. In 1981, for example, commercial bank
credit to manufacturing and mining totaled just
12 percent of total outstanding loans.
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Figure 3
Jordan: Origin of GNP at Factor Cost
Percent
1972
Construction 5
Net remittances 4 -
Net investment incom
from overseas 3
Manufacturing 8 ~~
Agriculture, Mining 15 -
Trade 18
Government 23
~~Includes net invesh>ent income form overseas,
which was a negative number in 1981.
Amman has embarked on an effort to gain majority
Jordanian ownership of foreign-controlled banks to
encourage private-sector financing of new industrial
ventures. It hopes that the new Jordanian stockhold-
ers-including some government entities-will be
more responsive to the central government's desire to
redirect capital toward these industries.
In a first step to improve resource allocation and slow
the growth in oil costs, Amman has planned substan-
tial cuts in fuel subsidies. Jordan's energy consump-
tion between 1976 and 1980 grew at an annual rate of
over 16 percent, and a senior Jordanian official
recently named rising energy consumption as one of
Jordan's two top development concerns. The cost of
imported oil-for which Saudi Arabia until recently
had been charging $34 per barrel-now exceeds the
total value of Jordan's commodity exports. The plan
ambitiously calls for a decline in oil imports to just
over one-third of commodity exports by 1985 by both
developing alternative sources and making more effi-
cient use of imported oil. Exploration for and feasibil-
ity studies of oil shale reserves are slated to continue,
although any payoffs from these are far in the future.
Finance, services, other 22
Construction 8-
Agriculture, mining 9 --
Manufacturing 11
Government 14-
Trade 16 --
Net remittances~20 -
Progress to Date
The first two years of the plan have produced mixed
results. GDP probably grew just over 7 percent
annually, while GNP growth was slightly higher. The
planned shift away from services did not materialize. 25X1
In 1981 commodity-producing sectors fell far short of
targets-agricultural output actually fell about
4 percent because of lack of rain. Although growth in
government services came to a near halt, private-
sector services and trade-boosted by war-related
demand in Iraq-continued to expand. The share of
output devoted to investment was roughly on target,
but consumption and exports fell far short. The
current account deficit was below the expected level.
Remittance inflows grew at nearly double the expect-
ed rate.
In 1982, however, the virtual stagnation of remit-
tances due to expatriate fears about regional security
in the wake of the war in Lebanon and falling
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Figure 4
Jordan: Planned Investment, 1981-85
commodity prices combined to produce an estimated
record $1.5 billion current account deficit (see table
2). Jordan's ability to sustain such a large deficit
depends heavily on Arab aid. Jordan is unusual
among LDCs in that it has had to borrow only about
1 percent of its capital needs. Nearly all of the deficit
in 1981 was covered by $1.3 billion in cash gifts,
mostly from other Arab countries. In contrast, most
nonoil LDCs were forced to meet about 75 percent of
their capital needs by borrowing (see figure 6).~
Social Impact of Development
The King has reaped substantial political benefits
from Jordan's headlong rush for material comfort
after the civil war in 1970 between Palestinians and
East Bankers. The dividends of tranquility have made
Jordanians appreciate the benefits of political stability
and reluctant to challenge the King's one-man rule.
As the US Embassy has observed:
The Gulf has provided an essential and unimagin-
ably rewarding outlet jor a large group oj'people-
mostly Palestinians-capable oJexpending their
otherwise unchanneled energy and emotion in an-
tiregime activities. So jar, potential troublemakers
have been succesgf'ully co-opted by personal pros-
perity-or the promise of prosperity-and in the
interests ojits continuation would not support
political activities dangerous to their new stability.
gies to studying.
The key to landing a lucrative job in the Gulf has
been a good education, and the King has ensured that
elementary and secondary education are widely avail-
able. In the 1980/81 school year, over three-fourths of
the school-age population was enrolled in formal
education. University admission and students' subse-
quent careers are largely determined by their per-
formance on the tawjihi-the high school graduation
test that also serves as a national entrance examina-
tion. The most economically rewarding fields, such as
medicine and engineering, are open only to students
who score well. Students eager to secure a lucrative
career avoid political activism and devote their ener-
Not all Jordanians have reaped the benefits of pros-
perity. Jordan's unfettered economic climate has led
to increasing income disparities. The comparatively
egalitarian, Bedouin society of the 1960s has been
swept aside. Today, about two-thirds of the population
lives in the capital. The successful workers in the
Gulf have tended to spend their earnings by building
large, comfortable homes in West Amman and lead-
ing conspicuously luxurious lives.
The flood of remittance money into housing touched
off a speculative boom in Amman land prices in the
late 1970s. It has become commonplace to talk of the
"two Ammans"-prosperous, remittance-built West
Amman living cheek-by-jowl with shabby, rundown
East Amman. Embassy reporting indicates the in-
creasing gap between the rich and the poor has not yet
occasioned significant grumbling. Those at the bottom
of the economic heap view the improving lot of those
above them as a guarantee that someday they, too,
will strike it rich.
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Figure 5
Jordan: Planned Growth Rates by Sector
1981-85 Planned
1981 Actual
1976-80 Actual
GNP
Net remittances
Government services,
including defense
Electricity and water
The economic prosperity of the 1970s also expanded
the role of women in Jordanian society. Female
participation rates in the labor force, while still low by
Western standards, have risen from 5 percent in the
1960s to approximately 17 percent today. Inflation
averaging about 12 percent during the latter half of
the 1970s and the scarcity of male workers after 1973
prompted many middle class women to seek employ-
ment outside the home. Jordanian women are now
offered primary and secondary educational opportuni-
ties comparable to those of men, though they are
usually restricted to attending local universities in-
stead of emulating their male counterparts, who go
15 20 25 30
I I I
By diverting political energies to material pursuits,
the boom has eased some of the tensions between
native East Bankers and the Palestinian majority in
the wake of the civil war, but it has aggravated others.
Embassy reporting indicates that the conspicuous
consumption of the wealthy Palestinians fuels the
resentment of those East Bankers who remain impov-
erished and believe that the Palestinians have taken
over Jordan. Conversely, many still poor West Bank-
ers point to the wealth of some native Jordanians as
proof that Palestinians are discriminated against.
abroad.
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Table 2
Jordan: Balance of Payments
Million US $
1967
1973
1976
1981
19828
19836
198 5
Trade balance
-120
-271
-813
-2,464
-2,556
-2,640
-2,723
Exports
32
58
207
744
824
860
1,828
Imports
152
329
1,020
3,208
3,380
3,500
4,551
Services balance
42
70
508
1,103
1,050
1,100
1,480
Net worker remittances
18
45
390
888
920
920
1,057
Tourism
4
2
111
182
97
150
c
Other
20
23
7
33
30
30
423
Private transfers
7
11
11
47
30
50
a
Current account balance
-71
-190
-294
-1,314
-1,476
-1,490
-1,243
Capital account balance
134
196
271
1,431
1,389
1,270
1,243
Official transfers
144
187
370
1,273
994
820
838
Other
-10
9
-99
158
395
450
405
Errors and omissions
14
7
5
-173
-116
140
0
Changes in reserves
77
13
-18
- 56
- 203
- 80
0
a Estimated.
6 Projected.
Projected by 1981-85 development plan.
a Not specified.
Plan Shortcomings
Several key issues are not adequately addressed in the
1981-85 plan. These include water scarcity, a rapidly
growing population, and strict price controls that
preclude the most efficient use of Jordan's resources.
Insufficient water is the most important. There is a
large, suppressed demand for water in virtually all of
northern Jordan and in particular in the Amman
area-where the bulk of the population lives. Since
the authorities have been unwilling to raise the price
of water, they have been forced to ration it in some
areas. One US study concludes that within the next
15 years population and economic growth will push
estimated demand for water one-third beyond avail-
able supplies
Jordan's main hope for meeting this extra demand at
a reasonable cost is to build a major new dam on the
Yarmuk River, known as the Maqarin Dam. Con-
struction of the dam, however, has long been stalled.
Israel and Syria each assert veto power over the
project because it would affect their riparian rights.
Neither has been willing to approve it, and current
political tensions make it unlikely that the Maqarin
Dam project will proceed in the foreseeable future.
Without the dam Jordan will be forced either to resort
to such expensive alternative methods as desalinizing
seawater, building a canal from the Euphrates River,
or cutting back on the water used for irrigation-in
turn cutting food production and aggravating the
trade deficit.
Jordan's population growth rate has been estimated at
3.8 percent annually over the past 10 years-one of
the highest in the world. Although the plan pays
lipservice to reducing this figure, it proposes no
specific measures and none are likely to materialize.
About half the population is under 15, and every
breadwinner has an average of five mouths to feed.
This very high dependency ratio restricts the private
sector's ability to save and invest.
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Figure 6
Jordan: Comparison of Capital Accounts, 1981
Percent
Jordan
Despite Jordan's emphasis on a free market, the five-
year plan shows little appreciation for the critical role
of prices in efficiently allocating resources. Jordan's
Ministry of Supply fixes prices for a wide range of
consumer goods. The prices are supposed to be based
on actual production costs, but many local business-
men charge that the Ministry ignores these figures
and sets prices so low that innovation and competition
are discouraged and lower quality goods produced,
according to the US Embassy.
Economic Prospects Through 1985
We expect that the external forces that have pulled
Jordan's economy ahead for the past decade will grow
slowly at best over the next several years:
? The decline in oil prices and concomitant economic
slowdown in the Gulf will eventually halt growth in
worker remittances and cut demand for Jordanian
exports.
? Baghdad donors will slow down aid payments due to
their straitened finances.
? Phosphate markets will remain soft.
Unless major new sources of aid materialize, we
expect that real GNP growth rates through 1985 will
drop to no more than 6 percent annually, about half of
the 1975-79 rate.
At the end of 1982 foreign exchange reserves were
sufficient to cover approximately two months of im-
ports of goods and services just within generally
accepted margins of safety. Unless King Hussein
secures a major non-Arab source of financial aid or
implements some domestic austerity measures, Jor-
dan's balance-of-payments position will become in-
creasingly tight. Expected shortfalls in Arab aid have
already helped to push government investment plans
down by $345 million this year-30 percent below
target
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The slowdown in domestic capital formation will tend
to cut imports and conserve foreign exchange, though
it will also retard Jordan's development efforts and
compound the effect on GNP of a drop in export
demand and remittances. Payments on Western mili-
tary debt, however, are rising and will more than
offset the decline in capital goods imports. Because
the government derives a large share of its domestic
income from customs duties, we believe Amman will
be reluctant to take strict austerity measures, such as
imposing import restrictions, devaluation, or prohibi-
tively high customs duties, since such measures would
cut into revenues.
Arab Aid. Of the $1.25 billion in Baghdad aid com-
mitments, we expect that Jordan will receive $780
million this year. Libya and Algeria have usually
reneged on their commitments, and Saddam Husayn
has informed the King that Iraq's financial crisis will
prevent it from paying its share.
We believe that the Saudis and the smaller Gulf
states will continue to fulfill their Baghdad commit-
ments, despite falling oil prices. In our judgment, they
view the Baghdad subsidies as one of the few remain-
ing expressions of Arab solidarity against Israel and
will be reluctant to abandon it at this juncture in
Arab-Israeli relations. The United Arab Emirates and
Qatar will probably delay writing their checks as long
as possible, as they did in 1982, leaving only Saudi
Arabia and Kuwait likely to pay on a timely basis
Jordan's military establishment absorbed about
12 percent of GNP in 1982-an estimated $300
million in foreign exchange for weapons imports and
$425 million in local currency for salaries and other
expenses. Military costs will jump substantially in
If a collapse of the oil market or some unforeseen
political event blocks Jordan's access to large sums of
grant aid, current investment and consumption levels
could not be sustained. Jordan has had little difficulty
arranging a $225 million Euroloan this year, but we
believe Western bankers made skittish by large debt
rescheduling in Mexico and other Third World coun-
tries in recent years would be highly unlikely to take
on the risk of pumping substantial funds into Jordan.
Moreover, Jordan's creditworthiness is heavily de-
pendent on bankers' perceptions that the Arab states
would bail Amman out in a crisis. There is no
prospect over the next three to five years that Jordan
would be able to boost export earnings enough to
compensate for a large drop in aid.
Remittances. Although the plan is counting on net
remittances to grow 10 percent annually, we expect
that they will grow much more slowly over the next
three years. The soft oil market and resulting finan-
cial pinch throughout the oil-rich Arab states that
were so eager to hire Jordanians in the 1970s have
prompted postponements of new projects and efforts
to cut back their foreign work forces. Recent oil
market developments suggest that the financial prob-
lems of the Gulf Arabs will intensify over the next
several years and preclude a rebound in remittances.
We do not expect that many expatriates will lose their
jobs, but the flow of new workers will slow to a trickle.
Saudi Arabia, for example, whose foreign labor force
grew about 9 percent annually during the boom years
of the late 1970s, will cut back its foreign work force,
though large-scale deportations are unlikely. Kuwait
has already frozen the number of non-Kuwaitis on the
public payroll and is attempting to cut the govern-
ment's foreign labor force by 10 percent.
Commodity Exports. We expect phosphate prices,
down about 8 percent in 1982, to fall again this year
(see figure 7). The US Embassy reports that Jordan is
already selling its phosphate at less than the cost of
production. Even if the recent upturn in the US
economy presages stronger world demand, the market
probably will remain soft. Morocco, the world's major
exporter of phosphates, is facing balance-of-payments
problems and will probably try to boost its production,
thereby keeping prices down. The outlook for fertiliz-
er prices is similarly dim.~~
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Figure 7
Jordan: Index of Wholesale
Phosphate Prices
~ 1971
a Projected
A Return to Unemployment. We believe the drying up
of job opportunities in the Gulf, continued rapid
population growth, and the domestic slowdown pre-
sage the return of domestic unemployment, which
virtually disappeared between 1975 and 1981. Large
numbers of highly skilled, well-educated young Jorda-
nians now entering the labor force who anticipated
finding lucrative jobs in the Gulf states could be in for
a rude awakening.
There are signs that the labor market has slackened in
recent months, although Amman does not produce
timely unemployment statistics. The US Embassy has
reported growing local concern over unemployed
youth-a complaint virtually unheard of until recent-
ly. Army enlistments and juvenile crime, two tradi-
tional indicators of youth unemployment, are on the
rise. The US Embassy has reported increased grum-
bling among young people about the number of jobs in
Jordan taken by foreigners. So far, the jobless are
mainly the unskilled workers undercut by less expen-
sive foreign labor.
We believe that planners' expectations of job creation
rates are unrealistically high. The five-year plan
projects that the 11-percent target growth rate of
GDP will increase the number of jobs inside Jordan
by over 7 percent annually, even though domestic
employment grew only about 6 percent per year
during the boom years of the late 1970s. We believe
that our forecast of 6-percent maximum GDP growth
for 1983-85 will probably mean a job creation rate of
4 percent or less, while Jordan's domestic labor force
will grow roughly 8 percent per year.
creasing inflation.
To restrain the growth in domestic unemployment,
the Ministry of Labor is beginning to clamp down on
the growth of the foreign labor force in Jordan-more
than 100,000 strong-by restricting work permits for
certain classes of Asian manual workers. Until Jorda-
nians reconcile themselves to lowered wage expecta-
tions, however, employers may have a difficult time
finding nationals to accept many of the positions now
filled by foreigners. If employers resort to increasing
wages to induce nationals to take these jobs, rising
unemployment would be averted at the cost of in-
We believe that Jordan's domestic manufacturers are
unlikely to reach efficient levels of production in the
next three years by exporting to neighboring markets
and that they will continue to require tariff protection.
There is little pnospect that Jordan would be willing to
trade with Israel until a final peace settlement is
concluded. Security and political problems make
near-term prospects for manufactured exports to Leb-
anon dim. The Saudis are primarily a market for
luxury consumer goods and heavy equipment that
Jordan does not produce. Syria to the north has
perennial foreign exchange crises, is at odds with
Jordan politically, and is unlikely to expand signifi-
cantly its imports-except for military equipment-in
the foreseeable future. Syria, moreover, has adopted
an import substitution strategy and is unlikely to
allow Jordan to compete with its own struggling
consumer goods and other light industries. Iraq, once
a promising market, has severely cut back imports due
to its own foreign exchange problems.
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Poetical Consequences
The US Embassy has observed that it is widely
assumed in Jordan that the government should exist
only for the support and comfort of those engaged in
the accumulation of personal wealth. The scramble
for government assistance by various interest groups
seeking influence over the budget is rising as the
opportunities to get rich quick by doing business with
Iraq or working in the Gulf fade. A US Embassy
source reports that the most recent round of budget
making provoked much sharper domestic political
struggles than usual. In the final budget, investment
funds were cut 30 percent below plan, while food
subsidies remained intact. A large increase in fuel
subsidies was averted only at the last minute.~~
The government's failure to sustain past economic
growth levels has prompted rising criticism of the
King and demands for more popular participation in
and influence over government decisions.2 The US
Embassy reports that Jordan's business community,
which views Prime Minister Badran and his Cabinet
as strongly antibusiness, is increasingly critical of the
government's price control and other economic poli-
cies. According to the Embassy, industrial leaders are
eager to see more of their number included in the
Cabinet.
Some businessmen are also beginning to question the
wisdom of the King's continued close alliance with
Iraq, according to the US Embassy. Hussein has
actively encouraged Jordanian companies to do busi-
ness with Iraq, and Jordanian firms now hold roughly
$450 million worth of contracts with Iraq. As Iraq's
foreign exchange crisis has intensified, Baghdad has
stopped payment on a number of contracts with
Jordanian merchants. The criticisms have become so
worrisome that the Central Bank has recently an-
nounced the formation of a credit facility to bail out
overextended Jordanian firms.
Many Jordanian businessmen remember that in the
heyday of Jordanian-Syrian relations the King also
encouraged joint commercial ventures with the Syri-
ans, much as he now does with Iraq. The subsequent
chill in relations between Jordan and Syria left many
of the ventures languishing. Some entrepreneurs no
doubt fear they will suffer the same fate in their
newly established trading relationship with Iraq.
The rapidly growing pool of highly educated young
people with disappointed expectations constitutes a
potential challenge to the King's continued one-man
rule. Many were educated in Western schools, are
well acquainted with the workings of democratic
societies, and conceivably could challenge Hussein's
monopoly of power. In our view, it is unlikely that
they would attempt to unseat Hussein; rather, they
would press him to delegate substantial authority to
popular representatives. In the absence of lucrative
jobs in the private sector, Hussein may try to co-opt
some of these young people by creating well-paid
positions in the government-giving them a vested
interest in its survival but draining government coffers
of funds that could be used more efficiently elsewhere.
In other Islamic countries, such as Egypt and Iran,
young people have found an outlet for their frustra-
tions in religious fundamentalism. Although funda-
mentalist sentiment is increasing in the universities-
most visibly in the number of veiled women-we do
not believe that a violent, fundamentalist reaction to
harder times will be a major source of domestic unrest
in response to current roblems. The Muslim Brother-
hood is active, but it
ecause i oes not meddle in domestic politics
The Army, Hussein's most important source of sup-
port, has thus far been able to maintain its salary and
benefit levels, although supplies are scarce
We believe Hussein,
mindful that the impact of inflation on military pay
was partly responsible for a brief Army uprising in
1974, will be careful to shield the military as much as
possible from the effects of the downturn.
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We do not believe that businessmen or other groups
hurt by the economic slowdown are ready to assume
the considerable risks of mounting a determined
challenge to the King. Grumbling about economic
conditions may be outweighed by the popular percep-
tion that the current system allows most people's
children fair access to education and job opportuni-
ties. We agree with the US Embassy's assessment
that only when avenues to a better life are firmly
closed will socially and economically deprived Jorda-
nians risk the political stability they have enjoyed
since 1970. Although the economic outlook for the
next several years is worsening, we believe that Jorda-
nians on balance consider that opportunities are allo-
cated in a reasonably equitable fashion.
Hussein is a cautious politician who would prefer to
avoid domestic grumbling. As the government's bud-
get and economic policies increasingly become the
battleground for various interest groups seeking to
protect themselves from harder times, Hussein will
probably allow an increase in the scope of public
debate over economic policy alternatives, so long as
his monopoly on power is not questioned. We believe
his response to the economic situation will consist
mainly of short-term palliatives that alleviate the
most immediate and painful effects of the slowdown
at the expense of long-term economic growth. A case
in point is the 1983 budget, which cuts investment in
order to sustain food and other subsidies. He will
avoid painful and unpopular measures to conserve
foreign exchange such as a sharp devaluation of the
dinar or cuts in food subsidies, at the cost of increas-
ing external debt and declining investment. He will
also be forced to reduce his hopes for major new
financial aid and political support to his regime. He
will want Gulf Arab backing before joining any peace
negotiations with Israel.
Hussein has always regarded financial assistance as a
sign of political support, and, in the event that he may
yet agree to join the US peace initiative, he will
expect a major increase in US and other Western
economic assistance
If negotiations over the West Bank were opened, we
believe Hussein would bow to longstanding East Bank
jealousies of the Palestinians and avoid arrangements
that would impose economic burdens on the East
Bank-such as agreeing to support West Bank indus-
trial development.' He would also want to limit the
Palestinian political role to preserve the monarchy
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purchases of modern weaponry.
Hussein will continue to extend assistance to domestic
businessmen severely hurt by the slowdown in Iraqi
payments and extend loans as necessary to tide them
over. He will also probably tone down his vocal
encouragement of Jordanian trading relationships
with Iraq.
Implications for the United States
Jordan's dimming economic prospects mean that Hus-
sein cannot afford to antagonize his major financial
backers and will not make political moves that run a
strong risk of entailing a further decline in their
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