Bankers count economic fallout from 'Arab Spring'

AFP, Sunday 26 Jun 2011

Short-term capital flight and budget pressures may give way to long-term benefits if new leaders reform business practices, improve trade and create jobs, say Arab delegates at Rome banking summit

Arab money
Arab world finance: hanging on for better days (Photo: Reuters)

Arab bankers painted a sobering picture of the economic results of political upheaval in their region at a conference in Rome, saying tourism has plunged and capital flight is on the rise.

Capital flight is running into the hundreds of millions of dollars (euros) per week and budget stability is under pressure as governments are forced to increase subsidies and salaries to keep social stability, they said.

But participants at the International Arab Banking Summit held this past week said they were hopeful in the long-term as long as the region's leaders move quickly to enact economic reforms that will help small businesses, boost trade and create jobs.

"These countries have significant potential" and the revolutions in the region will ultimately "show the benefits of democratic change," Adnan Ahmad Yousif, chairman of the Lebanon-based Union of Arab Banks, told the meeting.

He warned however that there will be short-term economic costs to pay for the upheaval in the Middle East and North Africa (MENA) region.

"There are clear challenges.... Inflation is up and unemployment has risen because of the revolts. It could reach 12 per cent next year," he said.

A wave of protests in Tunisia earlier this year led to the ouster of that country's president Zine El Abidine Ben Ali on January 14 and set in motion a dramatic popular upheaval in autocratic regimes across the Arab world.

Western countries and international financial institutions have promised multi-billion dollar aid programmes to help new governments in the region, with European states calling for a new economic partnership with North Africa.

But economic turbulence in the region has persisted, particularly as the uprisings in Bahrain, Libya, Syria and Yemen have been violently repressed.

Tens of thousand of young Tunisians have also fled the country in the wake of the revolution in the hope of finding a better life in Europe.

Joseph Torbey, head of the World Union of Arab Bankers, said: "We need an economic framework for sustainable and equitable growth... bridging the gap between rich and poor and empowering the middle class."

"Stability is the name of the game," he said.

Shamshad Akhtar, a senior World Bank official for the region, said: "The future of MENA is very promising but it depends on how effectively the region can unleash its resources including social and human capital."

She warned of the risks of high youth unemployment, oil price volatility and rocketing food prices in the wake of protests, as well as chronic problems in the region such as a lack of access to credit for small businesses.

"If there is protracted political unrest, particular pockets will experience vulnerability, particularly as regards the slowdown in tourism and the slowdown in foreign direct investment," she said.

Jordanian Finance Minister Mohammad Abu Hammour told the conference about the type of economic issues caused by the instability.

"Five hundred million dollars (349 million euros) a week are leaving the Arab world. Tourism is falling, foreign direct investment is down," he said.

"We need to guarantee job opportunities.... We need five million new jobs every year but we have only been able to generate three million jobs a year."

Hammour called for greater economic integration between Arab countries, more assistance for small and medium-sized enterprises and development of the private sector as ways to improve the economic outlook for the region.

Many bankers were optimistic of the effects of popular movements over the longer-term but Mahmoud Al-Bouri, chairman of the Egypt-based Arab African International Bank based in Egypt, said emigration will go up.

He added: "Instability in the Arab world will continue for years."

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