Identifier
Created
Classification
Origin
06TUNIS635
2006-03-17 15:44:00
UNCLASSIFIED
Embassy Tunis
Cable title:  

WORKING-CLASS OPINIONS AND COMMENTS IN TUNISIA

Tags:  ECON EFIN EPET TS 
pdf how-to read a cable
VZCZCXYZ0012
PP RUEHWEB

DE RUEHTU #0635/01 0761544
ZNR UUUUU ZZH
P 171544Z MAR 06
FM AMEMBASSY TUNIS
TO SECSTATE WASHDC PRIORITY 0141
UNCLAS TUNIS 000635 

SIPDIS

SIPDIS

STATE FOR EB, NEA/MAG (LAWRENCE,) NEA/PPR AND EB/CBA, STATE
PLEASE PASS USTR (BELL),USDOC FOR CLDP (TEJTEL) AND
ITA/MAC/ONE (TCHERGUR)

E.O. 12958: N/A
TAGS: ECON EFIN EPET TS
SUBJECT: WORKING-CLASS OPINIONS AND COMMENTS IN TUNISIA
(PART 2 OF 3): FUEL PRICES, INFLATION, FINANCING
MECHANISMS AND CREDIT

REF: A. REF A: TUNIS 357

B. REF B: 05 TUNIS 2409

UNCLAS TUNIS 000635

SIPDIS

SIPDIS

STATE FOR EB, NEA/MAG (LAWRENCE,) NEA/PPR AND EB/CBA, STATE
PLEASE PASS USTR (BELL),USDOC FOR CLDP (TEJTEL) AND
ITA/MAC/ONE (TCHERGUR)

E.O. 12958: N/A
TAGS: ECON EFIN EPET TS
SUBJECT: WORKING-CLASS OPINIONS AND COMMENTS IN TUNISIA
(PART 2 OF 3): FUEL PRICES, INFLATION, FINANCING
MECHANISMS AND CREDIT

REF: A. REF A: TUNIS 357

B. REF B: 05 TUNIS 2409


1. SUMMARY: Throughout 2005 and early 2006, Tunisians have
complained about rising price levels. Everything from olive
oil, to gasoline, to automobile insurance has seen price
increases in recent months, and there is a rise in official
and actual inflation. Middle-class to lower-income Tunisians
admit to a growing reliance on credit to fund regular
expenses. The incidences of speculation on and personal
experiences with a more developed economy are also
increasing. END SUMMARY.

Fuels Prices, Heating for Homes and the General Price Level
-------------- --------------


2. Gasoline in Tunisia is currently 1.00TD per liter,
(approximately .75 USD) which is a sizable increase from one
year ago, when gas was .70TD-.80TD per liter. Over the year,
there were four increases in gas prices, representing a 25-30
percent annual increase. The general buzz is that everyone
is expecting another increase in gasoline prices, which would
put the speculated price in the 1.20TD range in the near
future.


3. Meanwhile, heating costs for homes have remained stable
over the winter, or gone up only slightly. Heating methods
vary and include electric heating; steam-heated radiator
systems; natural gas; blue gas, which is liquid fuel in a
portable gas burner; and the traditional charcoal pot. Only
about 10 percent of the population continues to use a
charcoal pot in the house, which has an open flame and is
clearly more dangerous. Nowadays, charcoal pots are found
mostly in rural areas, or as novelty items in the city for
people who want to have them for sentimental reasons.
However, one lower-income woman told Commoff she still heats
her home with a charcoal pot to control heating costs. The
majority of working class Tunisians interviewed use blue gas.



4. In addition to rising fuel costs, overall inflation has
risen as well. Even during good harvest years, like 2005,
consumers have not seen the expected price decrease on

locally-produced staple food items, such as olives, oils,
vegetables and fruits (Ref B). With local concerns about
avian influenza causing a 40 percent decline in retail sales
of poultry this spring, the demand for meat and fish has
risen, and so have their prices. A local Coca-Cola official
recently explained that the company does monthly computations
of a representative consumer basket of goods. Over the
course of the past year, it has noticed a general price
increase of consumer goods of 16 percent. Car insurance
rates are also rising; however, this rise may be compounded
because of additional cars on the road, a situation that
leads to more accidents. One woman's car insurance was 195TD
five years ago; the same policy on the same car, five years
older, is 300TD per year.


5. The official GOT figure for inflation in 2005 released by
the Tunisian National Institute of Statistics (INS) is 3.9
percent. The IMF lists 2005 consumer prices in Tunisia as
growing at 2.9 percent annually, with a predicted drop to 2.5
percent in 2006. Further, the IMF states that inflation is
under control in Tunisia. (NB: This range of inflation is
comparatively healthy for an emerging economy with a growth
rate in the 5 percent range, and not actually a cause for
alarm. These statistics provide a measurable example of
Tunisia's evolution to an emerging economy.) Irrespective
of price increases and inflation rates, so far, most of the
people interviewed have managed to maintain their consumption
levels. They may be complaining actively, but they have not
yet started cutting consumption seriously.

Borrowing
--------------


6. It's clear that people are spending more money on daily
expenses, especially during Ramadan (Ref B),but where is the
extra money coming from? Simply put, many people are
borrowing money for consumption. They either take advances
on their salaries or take out loans. Poorer people with no
access to credit borrow money from family, friends, or
colleagues. One woman said she loaned a colleague 50TD for
Ramadan. She was told she would be paid back by the end of
November, but she expected to see the money returned around
the time of the Eid el Kebir, (January 20th this year). She
was eventually repaid, but not until the end of January.



7. Many banks offer 500-1,000TD loans for Ramadan, for the
Eid, or for family vacations. An air ticket to France can be
bought with only 25 percent down, with the rest financed for
weeks following the trip. A common phrase advertised in
shops during the holidays was "buy now during Ramadan, pay
after the Eid." For larger items, consumers might take up to
five years to repay a loan. One man told us he financed his
daughter's summer wedding with a 16,000TD five-year loan.
This is a sizeable sum, considering that he is supporting a
family of four (after the wedding) on a monthly income of
1,238TD.


8. People can finance the "Omra" and the Hajj, and even the
traditional sheep for slaughter at the Eid al-Adha. This is
an interesting development for a Muslim country, where
religious practices dictate that charging or receiving
interest is forbidden, but even so, the practice is quite
common and growing.

Saving and the Future
--------------


9. Another middle-class woman lamented that her family
doesn't save money anymore--it spends it all on monthly bills
and consumption. Their mortgage is 437TD per month. She
complained that they used to make less money, yet saved more
in the past. She is also worried, because this lack of
flexibility in their budget leaves them unprotected from
catastrophic, unplanned events. Two other interviewees
suggested that increased consumption is an indicator that
Tunisians have a shortage of places to invest their money,
hence the propensity to spend for today. The low rate of
saving led one interviewee to say that this situation is
indicative of a lack of hope in the future, lack of general
investment, and a lack of trust that any business could
succeed. And, he added, with any serious success in an
endeavor, one would surely encounter some form of negative
intervention on the part of the GOT or the ruling business
elites (Ref A).

Loans and credit
--------------


10. Loans have become more widely used than in the past.
The practice of taking out consumer loans started in Tunisia
around 1990. At one time, the GOT offered (essentially)
subsidized car loans to bring small, affordable automobiles
to the Tunisian middle class. Then about four to five years
ago, people began buying more fashionable new cars on credit,
which bumped up the cost of loans. One woman bought a new
car, and has a loan for 7,000TD. Her monthly salary is
1,238TD, her husband works, but they now have a baby at home.
Through banks such as Banque Internationale Arabe de Tunisie
(BIAT),Societe Tunisienne de Banque (STB) and others,
Tunisians can get loans for big ticket items, such as cars,
weddings, furniture and small appliances. However, getting a
bank loan is directly related to age and becomes more
difficult as you approach retirement. Banks become reluctant
to grant loans from the age of 55 onwards. Thus, some
finance their purchases by borrowing from family and friends.
Interviewees say that the Tunisian rule of thumb is that it
is acceptable to pay back a family loan in one to
one-and-a-half years.


11. One man said that almost every family has at least one
loan, either for a house, a car, furniture, or something
else. Interestingly, two women who seemed to have the most
need for additional income said they had no loans. Both are
lower-income breadwinners with sizable families and make
487TD per month. One is a widow, and one has a husband who
has only worked for three years since 1991. One of these
women is putting a son through private school. The other
woman, a widow, has two sick sons, aged 32 and 40, who are
unable to work. Both women believe that the "younger
generation" wants too much without working or waiting for it.


The practice of "Taqseet" or installment payments
-------------- --------------


12. Local retailer Carrefour and banks both offer "les
traites," which are installment payment coupons. These must
be stamped by a bank or notarized to be accepted. For
example, to buy a TV, each month the customer pays an agreed
amount, such as 50TD. Every month s/he must take the coupon
to the store and make the payment. When first considering
the purchase, s/he goes to the store, agrees on the number of
payments and price per payment with the merchant, and takes


these coupons to the local municipality to get them
notarized. The stamped coupons give the vendor the right to
repossess the item, and the authority to collect on any
outstanding debt, if necessary. Examples of where a consumer
might use these coupons are not limited to the larger
hypermarkets. Tunisians use them in local boutiques, and
they are quite commonly used for furniture purchases.


13. At furniture chains, you can buy bedroom furniture with
only 10-30 percent down, with the rest financed through
installment payments. A typical bedroom set can cost in the
range of 2,000-10,000TD. If you pay cash, you can get a 5-10
percent discount off your purchase. If you finance the
purchase, you typically pay the retail price, plus anywhere
from 5-30 percent in interest charges.


14. There are repercussions for people who don't pay back
their loans. Vendors repossess items and resell them to
recoup losses. Creditors can also take bad debtors to court
to enforce payment, as long as the installment agreement was
documented. Vendors may also put a lien on property. The
local police maintain a list of bad debtors and routinely do
spot checks at busy public places like Carrefour or bus
stations to catch those who have tried to skip out on a debt.
If a debtor on the list gets stopped by police, they can be
taken to jail and held until a family member comes and pays
the debt. The debtor spends the first night in jail, and
next day, goes to court. In court, either someone comes and
pays the debt, or the debtor goes back to jail until the
outstanding loan is paid.


15. It is also not uncommon to see debtors who cannot pay
for a financed item sell it off privately after they have
used the item for a period, and then use sale proceeds to pay
back the loan. Others sell goods immediately, after
purchasing them on credit, as a creative financing mechanism.
In fact, there is a well-known store where people buy new
items on credit in the store for retail price, and sell these
new goods out in the front yard of the store at a discount
for cash. These impromptu vendors use this method as a
desperate way to get a cash advance when they don't have a
line of credit with a bank or family members.


16. One interviewee said "people are complaining that life
is more expensive, but there is little action." Another said
"People are complaining about high prices, but people are
getting more these days and waiting less time to have it." It
is certainly true that many people are indeed able to
purchase more things, because of the ability to have them now
with credit.


17. COMMENT: These everyday accounts are useful
illustrations of the evolving economic problems many
Tunisians face. While the development of the budding credit
industry is a good, practical indication of Tunisia's
economic and commercial progress, many families have become
seriously indebted, causing financial stress for families,
and bad loans are a major banking challenge that could slow
Tunisia's economic development, if reform is not continued
and pursued with discipline. END COMMENT.
HUDSON