Can the IMF help with social discontent in the Arab world?

Supporting locally driven, effective anti-corruption action is necessary for any development assistance.
Sunday 01/04/2018
An Egyptian vendor reads the newspaper outside his fruit and vegetable stand in Cairo. (AFP)
Tough times. An Egyptian vendor reads the newspaper outside his fruit and vegetable stand in Cairo. (AFP)

The need for “urgent” action to create jobs to address “simmering discontent,” as recently described by International Monetary Fund Managing Director Christine Lagarde would surprise few in the Arab world.

Millions of young Arabs are languishing without jobs. To mark the seventh anniversary of the uprisings in the Arab world, the International Monetary Fund (IMF) highlighted the dire state of the region’s economies with speeches, blog postings and a regional conference in Marrakech.

Many analysts agree with the IMF’s analysis that the model of state patronage that supports bloated public sectors in which few people can or want to create and develop their own economic opportunities has led to stagnation. Corruption and conflict have also hampered development. Other economic models, such as socialism, lost favour in most of the world, including Arab countries, with the fall of the Soviet Union. Alternatives to free-market capitalism have not been developed.

The situation is “extremely bleak” and there are few good options to address it, said Pamela Abbott, director of the Centre for Global Development at Aberdeen University.

At the Marrakech conference, Lagarde said 27 million young people would join the workforce in the next five years in the Arab world, which has the highest average rate (25%) of youth unemployment of any region in the world.

“More than 60% of citizens perceive that connections — or wasta — determine whether or not you find a job,” Lagarde said. “The public dissatisfaction that is bubbling up in several countries is a reminder that even more urgent action is needed.”

Tunisia, where the “Arab spring” started in 2010 with demonstrations seeking the president’s ouster, experienced days of rioting last month. The protests were linked to the imposition of price rises as part of an IMF-led programme to reduce Tunisia’s budget deficit.

Egypt experienced discontent in 2016 after a $12 billion IMF loan, in exchange for allowing the Egyptian pound to float against the US dollar, led to higher prices.

Tunisian activists blamed the IMF for last month’s protests. “The growing protests are clearly a signal that the economic situation is no longer sustainable,” wrote Jihen Chandoul, co-founder of the Tunisian Observatory of Economy, in the Guardian, a British newspaper, adding, “the IMF and the interests of people are contradictory.”

The IMF said it is more responsive than before to the costs imposed by austerity measures. Jihad Azour, the IMF’s Middle East and Central Asia director, wrote in a blog posting that the IMF sought “to be sensitive to socio-political circumstances — for example, repeatedly relaxing the budget deficit target in Tunisia, even though this came at some cost in terms of debt and inflation.”

He added that the IMF watched for signs of broad economic stability, a pick-up in growth and stabilising inflation and it would be a mistake to reverse any reforms.

Azour made the case for reforms, including reducing corruption, fair taxation and strengthening women’s rights. The model of state patronage in which the public sector supports every fifth job failed to improve public services such as health and education, he said. He added, however, that, despite “considerable” challenges facing the region, “countries have made progress since the ‘Arab spring.’”

Abbott said the consensus that economic liberalisation was the best way to boost growth was unlikely to be challenged.

“The role of international financial institutions, including the IMF, has been to offer financial assistance that requires structural adjustments, including privatisation of public industry. The consequences of that, and even the IMF says it, is to create unemployment and insecure jobs,” she said. “Countries assume liberalisation of the economy is the answer or the only option because they don’t know what else to do.”

Abbott pointed to the backlash against austerity in developed economies as voters have made known their anger against tax avoidance by multinational companies and other practices seen as corrupt.

People in the Arab world are aware that “crony capitalism and corruption” are among the biggest impediments to their economic betterment, she said.

Supporting locally driven, effective anti-corruption action is necessary for any development assistance, stated an academic paper, “Sinkholes of Insecurity,” Abbott co-wrote last year. It examined the economic and political challenges in Egypt, Jordan, Morocco, Iraq, Libya and Tunisia and compared the costs of corruption with the benefits of development assistance.

There was no contest. Abbott said: “In developing countries, we know capital flight, including the legitimate exporting of profits, and corruption amount to much more than any developmental assistance given to efforts to improve their economies. Major discontents are unemployment and corruption and people understand and reject crony capitalism.”