Did the IMF miss the point in Jordan and elsewhere?

There is no doubt about the seriousness of Jordan’s economic malaise. The country gradually entered into a technical and geopolitical recession with the outbreak of the so-called Arab Spring in 2011, which initially cut its main traditional markets in the region and trade routes. The response of the government was to resort to more borrowing, draw down reserves and increase dependence on international aid. It was hoped that the crisis was of a temporary nature, and that soon we will return to business as usual, without the need to recourse to much-needed economic reforms. With the level of debt now reaching $40 billion, and with a debt-to-gross-domestic-product ratio reaching a record 95 per cent, the economic crunch that has been gradually squeesing the country since 2011 has been felt most acutely this year, particularly after Jordan's Gulf Cooperation Council allies decided not to renew a five-year financial assistance programme worth $3.6 billion that ended in 2017.

While the situation in Jordan is getting more serious, which calls for desperate measures, the notion that the International Monetary Fund’s (IMF) bail out will provide a good solution is a bad idea and must be dismissed. There are a number of reasons why I think this is the case.

First, the available empirical and historical evidence is not supportive of the idea that the IMF-administered rescue packages are capable of rescuing an economy suffering from severe recession. On the contrary, the available evidence suggests that such a package is a recipe for disaster. The outpouring of Jordanians onto the streets on an unprecedented scale over the past two days just confirms this.

Second, to suggest that Jordan’s economic malaise is purely financial in nature and scale is an alarming, seriously flawed and dangerous misdiagnosis. This will absolve current, and previous, governments from any responsibility and will divert attention away from other, more critical reforms and issues that the incumbent government will have to implement and which have less to do with pure finances.

Third, and while Jordan’s external environment proved hostile in recent years, other driving factors of the current economic predicament are internal. They include loss of investors’ confidence, a poor educational system, mismanagement of public resources, an over-bloated and unqualified public sector, policy uncertainty and corruption. An IMF bailout will leave most of these issues untouched.

Finally, an IMF financial bailout will and is already undermining the incentive for conducting the kind of reforms Jordan needs most to rescue its economy and restore stability. 

Neither in the Arab world nor in other developing regions does the IMF have a good record. IMF reform packages tested the political will and stability of the government of each country that implemented them, from Cairo to Rabat, Tunis to Khartoum, and Sana’a to Amman. Of all the countries that resorted to the IMF support in the past, few have managed to reduce their public debt, restore sustainable growth or even graduate from the IMF dictates. This is despite the fact that the IMF package itself is described as “short-term”, not supposing to last for more than 12 to 18 months. 

Jordan itself is a case in point. The country has not been able to graduate from IMF support despite repeated IMF bailouts and despite being a “good pupil” of the IMF for almost 30 years now, as most IMF officials would concede. The level of debt in Jordan today is at a record high, along with poverty and unemployment. Even average growth in Jordan never restored its pre-IMF bailouts phase of the 1980s, for example. These are all clear evidence that Jordan’s economy cannot ever wean itself from IMF support. 

Jordan’s debt-riddled economy is today stripped of its policy autonomy, internal sovereignty and any level of domestic policy formation that could provide a more pro-growth economic path. 

The IMF’s poor economic record is largely explained by the choice of economic policies it imposes on recipient countries. An IMF one-size-fits-all recipe fails to focus on the real issues and problems. In fact, the IMF’s policy prescription contradicts what a textbook in economics would call for: Do not impose more austerity during austerity. It also contradicts policy prescriptions of Western governments, which resorted to massive bailouts and public borrowing in order to deal with the global economic recession that hit the world economies in 2008. 

By insisting on cutting government spending, borrowing and subsidies, increasing interest rates and food prices and increasing taxes all in the midst of austerity, the IMF package, which is often known as Stabilisation or Structural Adjustment Lending programme, further destabilises the economy and leads to overkill. It simply kills the patient rather than curing them. Jordanians have expressed their feelings of overkill by pouring out onto the streets en masse. The IMF’s repeated bailouts have brought misery to most Jordanians, by worsening equality, increasing poverty and unemployment and decreasing living standards, yet without dealing with the real and most critical issues. 

Treating the problem as simply a financial one will neither ease Jordan’s economic turmoil nor address the more critical issues in the economy. The departing government, by insisting on challenging public opinion and sentiments without providing a viable alternative, has undermined its own credibility and chances of steering the country out of recession. Its imprudent economic policies, and that of its predecessors, have now left the incoming government with some serious challenges. Persistence with financial solutions will only deepen the crisis and slide Jordan into further debt, misery and instability. 

Jordan should exploit more strongly its geopolitical position and options to obtain financial assistance with less or little strings attached. But the new government and policy makers should use this newly obtained finance to deal more genuinely this time with the more critical issues in the economy, including bad policies, resource and economic mismanagement, waste, nepotism and corruption. Ironically, these real and critical issues can be done without external bailouts.

The writer is a chair and professor of international political economy at the Manchester Metropolitan
University, UK