Will the economy rebound soon?

Yusuf Mansur

Mark Twain once said: “When angry, count to four; when very angry, swear.”

I became very angry last week when I read some analysts’ statements. An analyst (who also happens to be a banker) recently said: “Jordan has been affected by the global credit crisis with a lag;” another, simply blamed consumers for refusing to borrow from banks to buy a house or shares in companies, in an already severely underpriced stock market.

The first statement is simplistic, while the second is not only simplistic but outright ignorant.

The blame should lie with the guardians of the monetary and fiscal policies.

The global credit crisis should have had a positive impact on Jordan, a claim I repeatedly made. Jordan is neither a net exporter of goods and services, such as China, nor a mega player, such as Dubai. Our imports are more than twice our exports and with the fall in import prices, we should have been doing well. In fact, we did. And we didn’t dabble in derivatives like Dubai. Not only should available (after tax) income go further and enables greater spending, our industrial and agricultural output should benefit by becoming cheaper since inputs make up a good chunk of it and when the prices of these inputs fall, our output becomes more competitive.

Is there any flaw in this argument? It is simple and logical, and, emphatically true.

But the government chose the alternative track. It started to prophesise doom immediately after the collapse of the Lehman Brothers bank in the U.S. in September last year. They started to shirk responsibility by blaming the global market in which we were never the player we claimed so often to be.

When confronted, they claimed that remittances from our exported brains, not goods and services, would collapse. Two months ago, the Customs Department reported that fewer than 700 returnees filed for customs exemptions on their repatriated belongings and furniture. That was it! Thus, the only objective and available measure of repatriated Jordanians puts the number at less than 1,000, not the hundreds of thousands the doomsayers falsely claimed. Remittances declined by only 4.4 percent during the first six months of 2009; this is not a meltdown in remittances, as they claimed.

Tourism revenues never collapsed as claimed: travel receipts declined by 2 percent only in the first half of 2009, compared to the same period in 2008, a paltry sum considering that 2008 was a special year anyway since we benefited from diverted tourism from Lebanon (tourism was hence up by 10 percent due to turmoil in Lebanon.)

Where is the negative impact? Tourism receipts were down by a mere 2 percent, I reiterate, not the 30 percent or 50 percent claimed.

Our trade deficit in the same period decreased by 32.4 percent, or nearly JD900 million. This is an amazing feat; it is great for a country whose trade deficit was at one time more than 50 percent of the GDP. This figure alone should have pushed the GDP up, not down.

But one should look at the growth in credit facilities in the fist half of 2009: it grew by 0.3 percent! In fact, credit extended to the private sector fell by 1 percent during the period. Does this not cause any alarm? It does to an economist.

How can the economy survive without money? Shall we go back to bartering? Does anyone recall that money was invented almost 700 years BC? And that money is used as a unit of account, a common measure of value, a medium of exchange, a means of payment, standard of deferred payment and a store of value? Then why was there no money in the first half of the year and there still isn’t now?

The economy had grown by 7.9 percent last year, according to official figures. This year it is expected to grow by 3 percent or even less, as the government continues to hedge. Before blaming Jordanians, we should review what we did to buoy the economy. Nothing good. Monetary policy went berserk and fiscal policy was just as wacky.

While there was strong evidence that the banking sector was not affected or will be affected at all by the global credit crisis (because we were not traders in derivatives and we had but one truly international bank), the monetary policy sounded the alarm and followed obtuse retrenchment. Banks stopped lending to the private sector and citing the initial “prudence” policies of the Central Bank of Jordan, decided to keep their interest rates high and not lend but to government and its employees and a few workers at listed companies. The rest of us had to rely on cash or sell assets to spend on investment, production and consumption.

What do we need banks for if they refuse to lend?

Pundits explained this as a wise move by banks so that they don’t become exposed to the credit crisis. For God’s sake, it was a global credit crisis, not a self-imposed liquidity crunch as we have here.

What did the fiscal authorities do? Nothing. It was business as usual: they announced a JD180 million fiscal incentive package that went down to JD150 million and then to nothing.

To make matters worse, they busied themselves with legislative reforms. Yes, they were putting their house in order, or appearing to do so, when the fire of pessimism, confusion and doom was already eating up at the economic growth and derailing the whole economy.

The debate was utterly senseless, and prolonged, and painful as the poor sold to spend, the rich sold their companies to foreigners to finance business activities, and one large project after another came to a dead stop.

Now, what type of economic management is this? Is it strategic or lacking?

I choose the latter.

So why did we lag behind the world and why are we only now getting into the crisis, when eight out of 16 developed countries surveyed by the Economist magazine are showing signs of recovery? And why did the US offer first-time buyers of homes tax credits and mortgage rates at historically low levels when it is impossible to get a loan in Jordan to buy a house or extend a business even at historically high loan rates?

The banks there, which were facing an economic meltdown, chose to extend credit to revive a failing market while the banks here chose to virtually stop all credit to the private sector to kill a thriving market.

Should we still blame the global credit crisis or simply blame ourselves and obvious incompetence?

So, will the economy rebound soon? Our economic managers might have the answer. But they should not lay the blame on the silent majority.

*Published in the JORDAN TIMES on Sept. 29, 2009.