MINIMAL ECONOMIC IMPACT OF TERRORIST BOMBINGS, SO

C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 009014

SIPDIS

E.O. 12958: DECL: 11/20/2015
TAGS: ECON JO
SUBJECT: MINIMAL ECONOMIC IMPACT OF TERRORIST BOMBINGS, SO
FAR


Classified By: AMBASSADOR DAVID HALE. REASON: 1.4 (E) & (G)


1. (U) SUMMARY: There has been little negative impact to
date on Jordan,s economy as a result of the terrorist
bombings of three hotels in Amman on November 9, according to
the general consensus among leading private sector and
government contacts. While tourism-related businesses are
suffering to a small degree, most are expected to rebound by
the end of the month. The banking and finance sectors have
fared well, with the Amman Stock Exchange remaining stable
and banks reporting no significant withdrawals of deposits.
Companies that produce manufactured goods report no impact on
sales. Investment in the short-term has not been affected as
investment leaders have, like most Jordanians, come together
publicly and announced the desire to continue with investment
plans in real estate and business development.


2. (C) COMMENT: Minimal economic fallout from the bombings
can partially be credited to a stable and liquidity-rich
capital market. It may also result from the influence
indirect government funds like the Social Security
Corporation and direct government funds like the Jordan
Investment Board wield in the financial markets, and the
relatively permanent investments of regional Arab
institutional investors. While the positive short-term
response is welcome, the outlook for long-term future
investment cannot yet be measured. Given the small size of
this economy, most contacts agree that a second major
attack could have more lasting effects. END COMMENT AND
SUMMARY.

Tourism and Related Sectors
--------------


3. (U) In the immediate aftermath of the bombings, most
hotels in Amman reported a significant drop from the
full-occupancy at which they were operating. The Radisson
SAS, where a bomber destroyed a banquet hall and killed over
20, reported a drop to 26%; the Hyatt re-opened November 17
with 50% occupancy. The Radisson General Manager projected
over 50% occupancy by the end of the month, and expected to
reach full-occupancy by the end of the year. Sabih Al-Masry,
the Chairman of Astra - the large Jordanian company that
locally owns the Grand Hyatt - told EconCouns November 16 he
expects his hotel to recover fully, and plans to continue to
develop multi-million dollar resort properties at the Dead
Sea and Aqaba. Hotels at the Dead Sea, Petra, and Aqaba
report no fall in occupancy since the attacks, according to
hotel management at individual hotels there.


4. (U) The tourism sub-sector of business conferences, a
strong driver of the service economy in Jordan, has received
both cancellations and new bookings. The UN,s World
Intellectual Property Organization (WIPO) postponed a
regional conference scheduled for Amman in early December,
while the World Tourism Organization and the World Travel and
Tourism Council have reportedly shifted executive conferences
scheduled for early next year to Amman from parts of Europe
in a show of support. Some security units of innovative
pharmaceutical company members of PhRMA would not allow their
personnel to travel to a PhRMA Euro-Med regional conference
scheduled for Jordan; PhRMA moved the event to Dubai.
Thuraya Husseini, General Manager of Lawrence Conferences and
Seminar Services, reported to EconOff that conference
cancellations are more the exception than the rule and that
"most events are taking place."


5. (U) In the port town of Aqaba, the Jordan Times reported,
cruise ships continue to dock, with "1,000 passengers docking
the day after the attacks, an additional 1,600 scheduled to
dock through the end of November, and 1,000 in December."


6. (U) In the aviation sector, an even more limited drop in
numbers was reported. Royal Jordanian's (RJ) head of
Passenger Services Mua'th Majali told EconOff of "a few
cancellations" on flights from the US and Europe in the days
following the attacks; one week after the bombings, however,
Majali says RJ is operating at "full passenger loads on the
Chicago-Amman and New York-Amman routes."

Financial Markets
--------------


7. (C) The Amman Stock Exchange (ASE) opened on November 14,
the first working day after the bombings, with a 1.5% drop in
market capitalization followed by a quick rebound and a 2%
gain the next day. Volume was heavy on the first day, but
not alarmingly high since. The ASE,s capitalization of $25
billion can be broken down to approximately 25%
government-owned, 32% Jordanian private sector, 33%
non-Jordanian Arab institutional investors, and 10% non-Arab
foreign investment. This mix favors a capital base
stabilized by the government and supported by petrodollars
invested in long-term markets such as real estate and
telecommunications.


8. (C) Additionally, the Finance Ministry auctioned a
six-month Treasury bill on November 14 at a 6.4% interest
rate, more than one percentage point lower than the Treasury
bills auctioned the month prior to the attacks. A higher
interest rate would have signaled private-sector concern
about Jordan's economic and political stability; the lower
rate may be seen as strong confidence in the government. The
lower rate may also be an indicator of heavy petrodollar
liquidity in the capital market. The fact that private banks
hold over 50% of their deposits in liquid assets such as
government bonds and CDs further supports this possibility.


9. (SBU) Some skeptics have argued to Embassy officials that
the financial market,s resilience is not healthy, and is an
indicator of GoJ interference in a sector that should be free
of such influence. Henry Azzam, CEO of Amwal Invest, a
prominent investment bank, characterized the financial market
response as "beyond finance." He sensed "patriotism and not
fundamentals is supporting the market." He also theorized
that the Social Security Corporation had stepped in to
support the stock market.

Investment & Trade
--------------


10. (U) Major real estate developers continue to exude
confidence in the market in Jordan with no plans to slow down
construction. Sabih Al-Masry,s plans for a $500 million
project in Aqaba comprising a resort, hotel, and residence
are still on schedule, as are those for a resort planned to
open at the Dead Sea in early 2006. Yousef Hayek, advisor to
multi-billion dollar construction company Consolidated
Contractors International, says "Construction in Jordan is
booming and will continue to do so." The only impact is the
potential "design re-engineering of security facilities" for
some projects.


11. (U) An informal sampling of factory managers in
Qualifying Industrial Zones - in which Jordanian-produced
goods with Israeli content receive preferential access to US
markets - said they have not seen any signs of changes in
buyer behavior or in orders, which are for production into
the first quarter of 2006. (Note: Any serious consequences
of potential buyer wariness would not be seen for at least
three months. End Note.)

Focus on Security
--------------


12. (C) Most leaders - government and private sector - seem
less concerned with a loss of business or a decline in the
economy, and more focused on obtaining stronger physical
security for their assets. Many of Post,s contacts believe
that Jordan has a looser standard on physical security checks
of individuals and vehicles than is the case in neighboring
Arab countries. The immediate addition of metal detectors
and early vehicle checkpoints in Amman by most small and
large businesses (hotels, restaurants, retail outlets) as
well as at government buildings demonstrates a galvanized
citizenry resolved to confront the security problem.


13. (C) A number of QIZ owner-developers are reviewing and
enhancing their existing security arrangements in order to
provide a secure supply chain for over $1 billion in goods
shipped to US ports annually. In the Kerak QIZ, the
government estate manager placed additional personnel in the
walled, gated compound and added an extra layer of security
checks for vehicles and personnel. At the private Ad Dulayl
QIZ, owner Jack Khayyat said that his personnel were now
doing 360-degree checks on all vehicles entering the QIZ
area, at the request of factory owners.


14. (C) COMMENT: While investor, government, and business
leaders remain undeterred by the attacks, there is major
concern about the impact of a second attack. Recent threats
by Abu-Mus,ab al-Zarqawi,s al Qa,ida to further target
tourist hotels, QIZs, embassies, and military bases augment
this concern. The fear that another attack could come soon
is driving the quick ramping up of physical security and the
strong cooperation between the government and private sector.
As leaders in both government and the private sector
recognize, the impact of further attacks could weaken an
economy that relies so heavily on petrodollars.
Additionally, if future attackers again were Iraqi, the
political backlash against the large Iraqi community here
could weaken one of the current props of Jordan,s economy.
HALE