Although global markets were looking for signs about how G7 leaders would respond to the ructions in the Eurozone, reading the reports over the weekend most of the deliverables seemed to relate to support for MENA. Perhaps because supporting MENA countries in transition and avoiding further destabilization that could add to commodity price spikes was one area where all G7 members could agree and where the stakes seemed lower than the fight over fiscal austerity and the need for coordinated stimulus and action. True, there were some insistent pledges on the need for coordinated action to support banks and avoid the failure of systemic institutions, but, it seemed like the effort to support the Arab spring had more details, or at least a wider coalition.
The so-called Deauville partnership (communiqué here), launched in May has doubled in number of recipients (Jordan and Morocco are now on the list, joining Egypt and Tunisia), donors (GCC countries and Turkey were involved as well as a long list of multlilateral development banks) and pledges, which now total US$38 billion, up from a packaged US$20 billion in May. By including other donors and projects, the grand total encompasses some of the funds pledged already by the Arab states, including Saudi Arabia, which some recipient countries may be more willing to accept.
In addition, the IMF also announced its recognition of Libya’s TNC, joining the G7 members, and perhaps paving the way for greater talks with the leadership. Unlike the other four MENA countries, Libya is more likely to want the unfreezing of the money it already has rather than aid. And the international community might force them to utilize these resources, in part to pay back those that have lent against future revenues. The IMF could play a key role in helping track Libya’s money and provide plans for better usage.
Given the fallout from Egypt’s rejection of WB/IMF funding some months ago on the basis that funding would be too restrictive, perhaps the G7 leaders thought it prudent to include also the Arab countries, who may have more funds on hand, or less political constraints in spending funds than cash-strapped G7 members. However, much of the US$38 billion are from the same institutions which the Egyptian government for one, shunned earlier this year, citing restrictive foreign constraints. It remains to be seen if governments will feel willing to accept foreign funds ahead of key elections, particularly as the consensus on the streets of Cairo seems to be that change has not gone far enough.
Interestingly, both Jordan and Morocco, who are currently in negotiation talks to join the GCC, and which have not experienced government overthrow, have joined the prospective recipients. Thus the group includes not only countries undergoing major transition or on the slow road to more representative government, but also the more reform-oriented of Arab monarchies. These Monarchs may have more space to create new institutions and greater finance may help alleviate economic burdens temporarily. Meanwhile, the easing of global commodity prices is now doubt a partial relief to those managing subsidy funds, however, the weaker global growth that exacerbated the commodity correction, will provide an offset.
The kings of both Morocco and Jordan have stepped more significantly towards reform movements.
Clearly the goal of the Deauville initiative is to get as much buy in and coordination as possible. However, given the sheer number of donors, all of which have slightly different goals at stake, this could be a difficult task. Moreover, it’s worth noting that either because of donor or recipient constraints, not a lot of money has flowed into these countries.
In particular, it will be interesting to see whether key governments like that of Egypt, which are struggling to dampen renewed protests, are more willing to take funding now than they were some months ago. The recent flaring of protest this weekend has reminded global watchers that the call for protest or change has not ended and many feel that the change has not gone far enough. At the same time, the Egyptian government continues to send mixed messages, reportedly changing visa regulations, which could dampen tourism, a major source of foreign exchange. The transition will remain a rocky one.
Still, even US$38 billion is quite small compared to the sums that these countries are seeking in investment funds. Tunisia alone has asked for US$25 billion over five years to revamp its economy and create jobs. With the global economic outlook uncertain, the strains on these economies and financing may be even more difficult, particularly if the mutually reinforcing political and economic uncertainty persists.
A lot of these topics will surely come up at the Chatham House event on the Economics of the Arab Spring on Monday…