The International Monetary Fund and World Bank should step in to ensure political change sweeping the Middle East doesn’t lead governments to abandon policies the Washington-based lenders have backed, analysts at the Carnegie Endowment for International Peace said.
“There is a significant possibility that the governments that ultimately emerge out of this crisis will renounce previous economic reforms as misguided and argue that they contributed to the region’s plight,” Uri Dadush and Marwan Muasher, former senior officials at the World Bank, wrote in the report dated April 14. “It is in the large economies’ own interest to ensure that economic reforms continue apace with political reforms.”
Intervention could take the form of loans to help with the balance of payments, “technical assistance on fiscal, governance and civil service reform,” and financial support for “civil society,” they said. The US, Europe and major emerging economies, especially oil importers India and China, should also provide assistance, they said.
Unrest in the Middle East and North Africa began with protests in Tunisia against high unemployment and political repression, which forced president Zine El Abidine Ben Ali from power in January. It spread to Egypt, Libya, Yemen, Bahrain, Oman, Jordan and other countries in a region that holds more than half of the world’s oil.
The ousted rulers of Egypt and Tunisia carried out policies that were praised by the IMF and World Bank, and spurred growth. Egypt’s government, starting in 2004, sold public companies and reduced subsidies to cut the budget deficit. Economic growth accelerated to 7.2 percent in 2008 from 4.1 percent in 2004.
The same policies, though, were among the targets of the protesters who drove Mubarak and Ben Ali from power. Opposition groups argued that growth didn’t create enough jobs or improve living standards for most Egyptians. They said the sale of state-owned companies and encouragement of foreign investment benefited regime cronies and elites, while subsidy reductions would hurt the poor.
The IMF is discussing financing needs with the region’s countries and is “ready to help,” IMF chief Dominique Strauss- Kahn said April 13. It has sent technical teams to Tunisia and Egypt in recent weeks. The World Bank is offering Tunisia a $500m loan, president Robert Zoellick said a day earlier, adding that Egypt can’t afford to return to the “old, failed ways” of a government-driven economy.
Dadush and Muasher said the main risk for the region’s economies – along with “lost faith in liberal economic reform” – is worsening budget balances as governments “essentially ‘buy’ peace with domestic handouts and new spending packages.”
For the world economy, one threat from the region is a prolonged increase in oil prices resulting from political tensions, and another is a mass exodus of migrants from troubled countries to richer ones, they said. Emigration may increase if Muammar Qaddafi, who has taken steps to curb the flow from sub- Saharan Africa via Libya to Europe, loses power, they said.
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