In Arab world, money offers alternative to reform

AP , Tuesday 6 Sep 2011

The Arab Spring hasn't come cheap. Uprisings this year across the Arab world _ stoked by chasms of income disparity, high unemployment and inflation _ are now being addressed with pledges of money

Arab spring
Yemeni girls wear dresses in the colors of many nations, with from left: Syria, Yemen, pre-Gadhafi Libya, Egypt and Turkish flags at a demonstration (Photo: AP)

From Egypt to the Gulf States, more than $160 billion has been pledged to fund job creation, social programs and private sector growth _ funding that nervous governments hope will be enough to appease their increasingly impatient populations. More than 75 percent of that total is for Saudi Arabia alone, where the oil-rich kingdom wants to buy domestic stability with jobs and handouts.

But analysts are increasingly skeptical that throwing money at the problem will suffice in the face of demands for genuine reform.

Money "exacerbates the problem, because you're creating an even wealthier society with higher expectations," said Gala Riani, Mideast analyst with IHS Global Insight, referring to Saudi Arabia's spending pledge. While it can work in the short term "the culture that it's created is very difficult to sustain in the longer term." Arab finance ministers are scheduled to hold a special session Wednesday in Abu Dhabi to discuss the economic fallout of the uprisings. For some, the focus is the price of reform and reconstruction, for others, the costs have yet to be fully calculated.

But with protests continuing even where the uprisings have ended, the stakes are clear for the new governments, and for those hoping to hold onto power.

The former leaders of Tunisia and Egypt are, respectively, in exile and prison. Libya's Moammar Gadhafi is on the run.

Syria's Bashar al-Assad is quashing unrest with bullets and Yemen's Ali Abdullah Saleh is recovering from injuries sustained in a rocket attack. Bahrain's king is fending off continued protests from the Shiite majority in his tiny island nation. In all those nations, the economies are barely limping along.

The domino effect of the Arab Spring, where protests in one country quickly spread to its neighbors, has not gone unnoticed in the oil-rich Gulf Arab nations, where power has long been concentrated in the hands of absolute rulers.

Saudi Arabia was among the quickest to act, with King Abdullah pledging around $120 billion for the kingdom's lower income groups. That followed fears that the Shiite uprising in neighboring Bahrain would spill into predominantly Sunni Saudi Arabia, disrupting its all-important oil production.

The Saudi Arabian government also launched a so-called "Saudization" program, requiring companies to boost their ranks of Saudi nationals. For years, most companies have relied overwhelmingly on expatriate workers.

Saudi Arabia and the five other Gulf Cooperation Council members also pledged $20 billion in aid to two of the GCC's most embattled states _ Bahrain and Oman _ to help those governments cope with mounting social unrest.

Even where the uprising has shifted from protests to rebuilding, as in Egypt, most longtime economic tensions like unemployment, low wages and a housing crunch remain.

How the government deals with these issues could shape the direction of other uprisings and reform efforts.

In the wake of the mass protests that toppled former President Hosni Mubarak, economic growth fell 4.2 percent in the first quarter of 2011, compared to the year before, and the IMF is projecting just 1 percent growth this year.

Egyptian officials expect the GDP to grow by about 3 percent in the coming year, about half what was expected before the January uprising.

Unemployment, meanwhile, is officially at almost 12 percent and not expected to fall significantly before 2013, according to London-based Capital Economics. Central Bank figures also show that Egypt has run down about one-third of its foreign reserves since December, in part to support the currency.

The government has pledged to increase spending for key social programs while keeping the deficit at about 8.6 percent of GDP. To fund the shortfall, it has been selling bonds and treasury bills. But yields on the notes have been climbing, reflecting investors' continuing unease with the country's ongoing challenges.

Gulf Arab states have more of a cushion in reserves accumulated from oil's rally over the past few years. But that same reliance on oil revenues also leaves them vulnerable and has the potential to affect their ambitious spending plans.

Saudi Arabia, for instance, needs oil prices of at least $80-$85 per barrel to keep its overall budget on track, according to various estimates. Capital Economic said in a recent research note that prices would need to fall below $70 before the government's spending plans would have to change.

Brent crude futures are currently at about $110 per barrel, after climbing to over $120 at the height of the Libyan civil war.

Meanwhile, the Saudis say their Saudization program will create about 1.5 million new jobs, potentially adding new burdens to private sector companies by forcing them to pay for training _ or to simply employ Saudis but add another layer of expatriates to do the actual work.

The program, "in of itself, doesn't resolve that problem that a lot of Saudis don't want to work" and aren't qualified for the jobs, said Riani.

And the massive funding packages do little to tackle the broader problems about lack of accountability in the oil-rich Arab world.

"There is no way to accept the way the Saudi state is," said Abdel-Moneim Saeed, head of the Cairo-based Al-Ahram Center for Political and Strategic Studies, noting that growth over the past decade has created an educated business class that will not tolerate the status quo for long.

"They need a lot of serious political reforms," Saeed said. The monarchy "could make the transition peaceful, keep a lot of the wealth, but they've got to start having some serious local elections, for instance."

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