Identifier
Created
Classification
Origin
03AMMAN2028
2003-04-03 15:30:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Amman
Cable title:  

JORDANIAN ECONOMY: WELL-PREPARED, FOR NOW

Tags:  EFIN EAID ETRD JO 
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UNCLAS SECTION 01 OF 03 AMMAN 002028 

SIPDIS

SENSITIVE

TREASURY FOR OASIA--MARSHALL MILLS, WON CHANG
USDOC 4520/ITA/MAC/ONE/COBERG

E.O. 12958: N/A
TAGS: EFIN EAID ETRD JO
SUBJECT: JORDANIAN ECONOMY: WELL-PREPARED, FOR NOW

UNCLAS SECTION 01 OF 03 AMMAN 002028

SIPDIS

SENSITIVE

TREASURY FOR OASIA--MARSHALL MILLS, WON CHANG
USDOC 4520/ITA/MAC/ONE/COBERG

E.O. 12958: N/A
TAGS: EFIN EAID ETRD JO
SUBJECT: JORDANIAN ECONOMY: WELL-PREPARED, FOR NOW


1. (SBU) SUMMARY: A high state of preparedness on a number
of levels has enabled the Jordanian economy to thus far
weather the war with few dislocations. However, the
expectations that have shaped the current economic stability
factored in a nonprotracted and a relatively--at least for
Jordan-- undisruptive conflict, resulting in quick and easy
access to a lucrative post-Saddam Iraq with minimal negative
political spillover in Jordan. Strains are already
beginning to show; if the war turns out to be longer than
locally expected, the conflict's drag on the Jordanian budget
and economy could grow proportionally. END SUMMARY

--------------
CRISIS? WHAT CRISIS?
--------------


2. (SBU) Central Bank of Jordan (CBJ) and commercial bank
managers did a good job of managing expectations ahead of the
conflict so as to minimize the chance of bad surprises when
war actually began. For example, public statements by CBJ
Governor Touqan highlighted the high level of foreign
currency reserves and strong capitalization of the banking
sector, and the Bank brought in extra cash dollars just in
case. Public statements by CBJ Governor Touqan emphasizing
the high level of reserves served to reassure clients and
investors alike. Thus, no unusual movements of capital nor
even short-term runs on deposits occurred in the early days
of the conflict, unlike 1991 and when King Hussein died in

1999. CBJ officials and bankers say that currently, "things
are quite calm" and that they are "very comfortable with the
situation," but emphasize that they continue to keep a close
watch.


3. (SBU) Trading on the Amman Stock Exchange (ASE) has
increased in both volume and value since the war began, with
investors positioning themselves for opportunities in a
post-war Iraq. Local investment analysis and brokerage firm
Atlas Investment Group (AIG) issued "Allocating the Spoils of
War," an analysis that featured 10 Jordanian companies that
were, according to AIG, well positioned to profit from the
war. Subsequently, the companies enjoyed a 6% increase in
their share prices over the past week. In addition, positive
2002 results for some Jordanian companies, released ahead of
annual meetings traditionally held this time of year,

resulted in higher volume as well. The ASE is relatively
highly capitalized as a share of GDP and has a large number
of small investors, making it a useful gauge of business
confidence.


4. (SBU) When the war started, prices of many commodities
dropped as the result of overstocked shelves in anticipation
of a run on basic goods and foodstuffs that fell short of
grocers' expectations. The government also reassured the
public that at least six months of essential food supplies,
including wheat, sugar, and rice were stocked in the country.
Although below-market cost oil shipments from Iraq have
ceased, the accumulation over the past year of 45 days worth
of strategic oil reserves (up from 15 days) enabled the
government to avoid, so far, disruptive rationing or price
increases for fuel and related products.

--------------
IT, TELECOMS GLITCH-FREE
--------------


5. (SBU) Mobile and fixed-line telecommunications operators
were well-prepared, too, having taken steps to protect,
maintain and upgrade infrastructure in recent months. As a
result, there has been virtually glitch-free phone and
internet service since the conflict began, unlike during
other high traffic events such as holidays and snowstorms
when the mobile system has been overwhelmed and knocked out
of service. According to a Jordan Telecom (JT) official, the
sole complaint the network is fielding these days regards the
increasing inability for Jordanian callers to establish
connections in Iraq, due to the degradation of the Iraqi
telecom infrastructure. Major IT companies say Internet
service, while nearing capacity levels at times, continues to
run normally.

--------------
BUT TROUBLE IN TOURISM
--------------


6. (SBU) Civil aviation, airport, and airline officials
increased airport security profiles and established
contingency plans in anticipation of the possibility of
conflict-related events spilling over into Jordanian
airspace. National carrier Royal Jordanian Airlines (RJ)
made preliminary arrangements to base its operations in
Athens, with limited shuttle service in and out of Amman.
However, as the Jordanian skies have remained clear and open,
normal airport operations have continued. RJ continues to
offer weekly direct service to New York, with full loads out
of Amman but running at 30% of capacity for return flights
and down 65% overall. The government on April 1 authorized a
transfer of JD 5 million ($7.05 million) to RJ to offset
extraordinary costs associated with the war. While some
European carriers have restored limited service to Amman,
flight frequency has been reduced considerably due to low
load levels. Perhaps educated after the Afghan conflict,
Jordan has done a better job dealing with insurance companies
and showing them how to better distinguish Jordan from the
rest of the region. As a result, insurers have not imposed
war risk premiums on air or sea transport, allowing export
and import trade to continue at near normal levels.


7. (SBU) Although late winter-early spring is considered low
season for travel to the region, hotel operators are
nonetheless alarmed at occupancy rates that have dropped to
25% at many hotels in Amman and even lower in traditional
tourist sites such as Petra and Aqaba. Even worse, summer
booking cancellations are beginning to appear, and an
industry that had just begun to recover from the impact on
international travel of the Intifada and 9/11, by
concentrating its tourism marketing efforts on nearby Gulf
countries, seems destined to take another hit. Were it not
for the hundreds of journalists in Amman, one owner told us,
the situation would be much worse. He added, however, that
due to the longer-than-expected (by some) duration of the
war, some reporters are pulling out because of limited
resources.

--------------
WHEN IS A BOYCOTT A BOYCOTT
--------------


8. (SBU) American companies doing business in Jordan have
seen no evidence of an organized boycott of American
products. While business is down by approximately 50% for
many fast-food restaurants as well as for locally-produced
Coke and Pepsi, company officials told us they can not
directly attribute the downturn to any concerted action.
Rather, they said, it may be due to what has in fact been a
cooler than normal spring and a rather somber time "when
people are more likely to stay home and watch TV."
Regardless, observers tell us of an increased frequency in
mobile phone text messages and emails exhorting readers to
boycott all things American and British. The owner of the
KFC and Burger King franchises in Jordan acknowledged the
possibility of a "random" boycott, but added that "it was
only a matter of time" before something more organized
surfaces.

--------------
IRAQI TRADE
--------------


9. (SBU) Exports to Iraq, which amount to $400 million per
year, have virtually ceased as fighting has intensified and
both overland and air transport routes between the two
countries have been cut off. The attendant effects of this
cut-off are likely to be felt in the near term most acutely
by exporters and transport companies, which nonetheless
expect greater opportunities once trade connections are
restored. In the short term, this will require significant
government transfer payments to the most affected groups.
However, as one analyst told us, the possibility of a new,
open Iraqi market is looked upon skeptically by many traders
here, even those with long-established Iraqi relationships,
who wonder "what will be the picture afterwards." He said
that the fear is that an open Iraq will mean more competition
and a change in rules and procedures that have been in place
for twelve years.

--------------
THE MACRO PICTURE
--------------


10. (SBU) Other exports appear to be continuing as normal,
although land freight rates are up to GCC countries because
of higher war-related insurance costs and air freight rates
have also increased. While QIZ export activity has continued
throughout the conflict, as time goes on, exporters are
beginning to report low level cancellations of orders. In
addition, jittery rumors of bridge closures, limited port
access, and rising freight insurance rates have unsettled QIZ
producers. Finally, a customs strike in Israel, unrelated to
the war, has served to raise the specter of more limited QIZ
exports at a very sensitive time.


11. (SBU) The same analyst expressed greater concern over
the effect of even a short conflict on Jordan's budget
deficit. He noted that "there did not seem to be much
clarity" for the public regarding publicly reported plans to
replace Jordan's below-market priced oil with supplies from
Gulf states, such as Kuwait and Saudi Arabia. As a result,
he said, people will expect to pay the same price for
gasoline, at least for the time being, making it politically
difficult for the government to raise prices, thereby putting
added strain on the budget. Our observer also said that last
year's 5% increase in GDP barely outpaced the rise in
government salaries and pension outlays; it was doubtful, he
opined, that such would be the case this year. He said
although grants and foreign aid may help alleviate some of
these strains, he worried that the "disciplined,
macroeconomic fundamentals" that have undergirded Jordan's
improved economic results in recent years could become
"unraveled" due to the conflict. Finally, he added that
foreign investors are not traveling to Jordan, "not at all,"
and said that foreign direct investment will look elsewhere
if the war is not over soon, if it has not already done so.

--------------
COMMENT
--------------


12. (SBU) One can scarcely imagine what more the Jordanian
government and key infrastructure and economic players could
have done to better prepare the Kingdom for a conflict that
has been a long time coming. That level of preparedness has
served Jordan well, and insulated it from even greater
dislocations, either present or future. However, as long as
the conflict in Iraq continues, uncertainties will grow and
cracks could begin to appear. The recently announced
supplemental appropriation of $700 million in economic
assistance will go a long way to help keep Jordanians
reassured about our continued commitment to Jordan's economic
stability and growth.





GNEHM