[Marxism] Rising Inflation Creates Unease in Middle East

[Bonnie Weinstein <giobon@xxxxxxxxxxx>]

Rising Inflation Creates Unease in Middle East

By ROBERT F. WORTH

February 25, 2008

http://www.nytimes.com/2008/02/25/world/middleeast/25economy.html?ref=busine
ss

 

AMMAN, Jordan ? Even as it enriches Arab rulers, the recent oil-price boom
is helping to fuel an extraordinary rise in the cost of food and other basic
goods that is squeezing this region¹s middle class and setting off strikes,
demonstrations and occasional riots from Morocco to the Persian Gulf.

 

Here in Jordan, the cost of maintaining fuel subsidies amid the surge in
prices forced the government to remove almost all the subsidies this month,
sending the price of some fuels up 76 percent overnight. In a devastating
domino effect, the cost of basic foods like eggs, potatoes and cucumbers
doubled or more.

 

In Saudi Arabia, where inflation had been virtually zero for a decade, it
recently reached an official level of 6.5 percent, though unofficial
estimates put it much higher. Public protests and boycotts have followed,
and 19 prominent clerics posted an unusual statement on the Internet in
December warning of a crisis that would cause ³theft, cheating, armed
robbery and resentment between rich and poor.²

 

The inflation has many causes, from rising global demand for commodities to
the monetary constraints of currencies pegged to the weakening American
dollar. But one cause is the skyrocketing price of oil itself, which has
quadrupled since 2002. It is helping push many ordinary people toward
poverty even as it stimulates a new surge of economic growth in the gulf.

 

³Now we have to choose: we either eat or stay warm. We can¹t do both,² said
Abdul Rahman Abdul Raheem, who works at a clothing shop in a mall in Amman
and once dreamed of sending his children to private school. ³We¹re not
really middle class anymore; we¹re at the poverty level.²

 

Some governments have tried to soften the impact of high prices by
increasing wages or subsidies on foods. Jordan, for instance, has raised the
wages of public-sector employees earning less than 300 dinars ($423) a month
by 50 dinars ($70). For those earning more than 300 dinars, the raise was 45
dinars, or $64. But that compensates for only a fraction of the price
increases, and most people who work in the private sector get no such
relief.

 

The fact that the inflation is coinciding with new oil wealth has fed
perceptions of corruption and economic injustice, some analysts say.

 

³About two-thirds of Jordanians now believe there is widespread corruption
in the public and private sector,² said Mohammed al-Masri, the public
opinion director at the Center for Strategic Studies at the University of
Jordan. ³The middle class is less and less able to afford what they used to,
and more and more suspicious.²

 

In a few places the price increases have led to violence. In Yemen, prices
for bread and other foods have nearly doubled in the past four months,
setting off a string of demonstrations and riots in which at least a dozen
people were killed. In Morocco, 34 people were sentenced to prison on
Wednesday for participating in riots over food prices, the Moroccan state
news service reported. Even tightly controlled Jordan has had nonviolent
demonstrations and strikes.

 

Inflation was also a factor ? often overlooked ? in some recent clashes that
were seen as political or sectarian. A confrontation in Beirut between
Lebanese Army soldiers and a group of Shiite protesters that left seven
people dead started with demonstrations over power cuts and rising bread
prices.

 

In Bahrain and the United Arab Emirates, inflation is in the double digits,
and foreign workers, who constitute a vast majority of the work force, have
gone on strike in recent months because of the declining purchasing power of
the money they send home. The workers are paid in currencies that are pegged
to the dollar, and the value of their salaries ? translated into Indian
rupees and other currencies ? has dropped significantly.

 

The Middle East¹s heavy reliance on food imports has made it especially
vulnerable to the global rise in commodity prices over the past year, said
George T. Abed, the former governor of the Palestine Monetary Authority and
a director at the Institute of International Finance, an organization based
in Washington.

 

Corruption, inefficiency and monopolistic economies worsen the impact, as
government officials or business owners artificially inflate prices or take
a cut of such increases.

 

³For many basic products, we don¹t have free market prices, we have monopoly
prices,² said Samer Tawil, a former minister of national economy in Jordan.
³Oil, cement, rice, meat, sugar: these are all imported almost exclusively
by one importer each here. Corruption is one thing when it¹s about building
a road, but when it affects my food, that¹s different.²

 

In the oil-producing gulf countries, governments that are flush with oil
money can soften the blow by spending more. The United Arab Emirates
increased the salaries of public sector employees by 70 percent this month;
Oman raised them 43 percent. Saudi Arabia also raised wages and increased
subsidies on some foods. Bahrain set up a $100 million fund to be
distributed this year to people most affected by rising prices. But all this
government spending has the unfortunate side effect of worsening inflation,
economists say.

 

Countries with less oil to sell do not have the same options.

 

In Syria, where oil production is drying up, prices have also risen sharply.
Although it has begun to liberalize its rigid socialist economy, the
government has repeatedly put off plans to eliminate the subsidies that keep
prices artificially low for its citizens, fearing domestic reprisals.

 

Even so, the inflation of the past few months has taken a toll on all but
the rich.

 

Thou al-Fakar Hammad, an employee in the contracts office of the Syrian
state oil company, has a law degree and earns just less than 15,000 Syrian
pounds, or $293, a month, twice the average national wage. His salary was
once more than adequate, and until recently he sent half of it to his
parents.

 

But rising prices have changed all that, he said. Now he has taken a second
job teaching Arabic on weekends to help support his wife and young child.
Unable to buy a car, he takes public buses from his two-room apartment just
outside Damascus to work. He can afford the better quality diapers for his
son to wear only at night and resorts to cheaper ones during the day. He
cannot send anything to his parents.

 

³I have to live day to day,² he said. ³I can¹t budget for everything
because, should my child get sick, I¹d spend a lot of what I earn on
medication for him.²

 

At the same time, a new class of entrepreneurs, most of them with links to
the government, has built gaudy mansions and helped transform Damascus, the
Syrian capital, with glamorous new restaurants and cafes. That has helped
fuel a perception of corruption and unfairness, analysts say. On Wednesday
the state-owned newspaper Al Thawra published a poll that found that 450 of
452 Syrians believed that their state institutions were riddled with
corruption.

 

³Many people believe that most of the government¹s economic policies are
adopted to suit the interests of the newly emerging Syrian aristocracy,
while disregarding the interests of the poor and lower middle class,² said
Marwan al-Kabalan, a political science professor at Damascus University.

 

The same attitudes are visible in Jordan. Even before the subsidies on fuel
were removed this month, inflation had badly eroded the average family¹s
earning power over the past five years, said Mr. Tawil, the former economic
minister. Although the official inflation rate for 2007 was 5.4 percent,
government studies have shown that middle-income families are spending far
more on food and consuming less, he added. Last year a survey by the
Economist Intelligence Unit found that Amman was the most expensive Arab
capital in cost of living.

 

Mr. Abdul Raheem, the clothing store employee in Amman, said, ³No one can be
in the government now and be clean.²

 

Meanwhile, his own life has been transformed, Mr. Abdul Raheem said. He
ticked off a list of prices: potatoes have jumped to about 76 cents a pound
from 32 cents. A carton of 30 eggs went to nearly $4.25 from just above $2;
cucumbers rose to 58 cents a pound from about 22. All this in a matter of
weeks.

 

³These were always the basics,² he said. ³Now they¹re luxuries.²

 

With a salary equivalent to $423 and rent at $176, paying for food and fuel
exhausts his income, he said. ³But we are much better off than others,² he
added. ³We are the average.²

 

Nawara Mahfoud contributed reporting from Damascus, Syria.


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