TUNISIAN ECONOMIC PROBLEMS BREED SOCIAL UNREST

S E C R E T SECTION 01 OF 03 TUNIS 000387

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E.O. 12958: DECL: 04/18/2018
TAGS: ECON ETRD PGOV KDEM TS
SUBJECT: TUNISIAN ECONOMIC PROBLEMS BREED SOCIAL UNREST

REF: A. TUNIS 362

B. TUNIS 131

C. 07 TUNIS 1528

D. 07 TUNIS 1443

E. 07 TUNIS 1433

F. 06 TUNIS 1672 (AND PREVIOUS)

Classified By: Ambassador Robert F. Godec for Reasons 1.4 (b) and (d).

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Summary
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1. (S/NF) The Tunisian economy posted solid growth in 2007 --
hitting 6.3 percent GDP growth for the year. Yet, for all
the positive economic figures touted by the GOT, not everyone
believes the hype. Regardless of whether the statistics are
accurate, Tunisians are undisputedly feeling the pinch of
rising inflation (up to 8.6 percent for food products) and
high unemployment. Recent protests in the mining area of
Gafsa (Refs A, B) -- an area with a particularly acute
unemployment problem and a history of rebellion -- reveal
increasing dissatisfaction with the status quo and with GOT
efforts to address these problems. Thus far, the GOT has not
only been reluctant to acknowledge the depth of these
problems or the existence of any unrest, but has actively
censored newspaper articles addressing the protests, food
price inflation, and unemployment. The GOT's denial does
little to hide economic woes from average Tunisian and even
less to solve the problems. Although on the surface the
problems are economic, economists are quick to point out that
there is no economic solution to the political problem of
governance. End Summary.

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A "Model" for the Region
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2. (SBU) The Tunisian economy posted positive, and
impressive, growth figures for 2007 -- hitting 6.3 percent
GDP growth despite climbing world prices and slow economic
performance in many of its traditional trading partners.
Long-term Tunisian economic development has been similarly
robust, with an average of five percent annual growth over
the last decade. The GOT is often praised by international
financial institutions for its sound economic and social
policies, which have delivered one of the highest standards
of living on the continent. With an extremely low poverty
rate (3.9 percent),a solid middle class (nearly 80 percent),
impressive literacy rates (74 percent),strong protection of
women's rights and a decidedly secular and moderate
population, Tunisia presents an attractive model for the
region.

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Don't Believe the Hype
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3. (S/NF) Despite positive economic numbers, many Tunisians
are not cheering. Ezzedine Saidane, private economic
consultant and former bank chairman, stated he does not trust
the numbers. Noting the dubious calculation of the inflation
rate, based on an ill-weighted basket of goods, Saidane
opined the real inflation rate is likely much higher (Ref C).
Joking about the GOT effort to keep official inflation low
by reducing the size of price-controlled bread loaves,
Saidane exclaimed that the government was demonstrating its
"disrespect" for the people. Another economic consultant
argued that rather than growing, the economy is actually
experiencing stagflation, exclaiming, "People talk about the
Tunisian economic miracle? It's ridiculous." When asked for
his evaluation of Tunisia's economic performance one venture
capitalist sighed and stated, "I have to believe the numbers.
There are no other numbers!"

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Growth, But for Whom?
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4. (C) While some doubt the government numbers, other
economists believe that the economy is growing steadily, but
that only a select few are actually benefiting from the
growth. World Bank (WB) Country Director Ndiame Diop noted
his surprise at the 6.3 percent growth, but stated that the

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numbers are consistent and that he believes them to be
accurate. Marouane Abassi, Professor of Economics and WB
consultant, stressed that most Tunisians are not seeing a 6
percent increase in wages, but are still suffering from 5
percent inflation. According to Abassi, this represents an
important redistribution of wealth in a country that prides
itself on its solid middle class. Persistent rumors of
corruption by the ruling elite (Ref F),accompanied by
conspicuous displays of wealth, have only fueled unease about
the GOT's economic management. A video of the Redeyef
protests (Refs A and B) posted on Youtube reflects growing
discontent at this divide, with one holding a sign saying:
"The people's money is in palaces, and the people's children
are living in tents."


5. (C) In conversations with Tunisians from all walks of
life, few express optimism about the future. Tunisians
complain of rising inflation (Ref C),low wages, and for
many, bleak job prospects (Ref D). Inflation for the first
three months of 2008 is up 5.8 percent over the same period
in 2007, with food inflation at 8.7 percent. The GOT
recently revised the official unemployment rate to 14.1
percent, up from 13.9, but this number fails to capture the
severity of the problem for some specific groups. A recently
released World Bank report calculated that the unemployment
rate for university graduates is 46 percent 18 months after
graduation and tops 50 percent for those with masters
degrees. Although the GOT is banking on foreign direct
investment to help create the jobs necessary to reduce
inflation and spur continued growth, Tunisian investors
remain skittish. Given the solid economic growth rates,
private domestic investment remains surprisingly low (12.5
percent) and nearly half the rate of Morocco (Ref E).

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What Problems?
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6. (S/NF) The GOT response to rising frustration has thus far
been to deny that any significant problems exist. In the
past month, the GOT has taken an active role in censoring
articles that address unemployment or inflation. A March
article on unemployment was reportedly censored by government
daily La Presse. In recent weeks, issues of independent
weekly al-Mowqif containing articles on shrinking loaves of
bread and poor quality cooking oil were pulled from the
newsstands. Similarly, mainstream press coverage of recent
protests in Redeyef has been virtually nonexistent. At times
it appears that GOT actions extend beyond censorship and
border on outright denial. During a lengthy and glowing
discourse on Tunisia's economy given by the Ministry of
Development and International Cooperation's Secretary of
State Abdelhamid Triki at an April 10 World Bank - OECD
hosted conference, one GOT official leaned over to Econoff
and mockingly summarized the speech saying, "There are no
problems. We don't need your help." Saidane compared the
Tunisian economy to a sick patient who refuses to go to the
doctor. "If you don't acknowledge that there are problems,"
he lamented, "how can you find a remedy?"

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Political Roots
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7. (S/NF) Even as the GOT attempts to deny the existence of
any cracks in the system, economists, and perhaps even
average Tunisians, are increasingly quick to point the finger
at the government itself. During a discussion on the
country's economic woes, Professor of Economics Azzam Mahjoub
hesitantly gave voice to a growing view, whispering to
Econoff that, "Ultimately, we are facing a problem of
governance." The WB's Diop stressed that the restricted
access to information and lack of dialogue on national
problems prevented the GOT from reaching effective solutions,
making Tunisia "the perfect example of how the lack of
democracy affects the economy." While the inability to
openly debate national problems remains a serious barrier to
solving them, the allegations of corruption have earned the
distrust of many Tunisians. Diop emphasized that he could
propose no economic explanation for the weak rate of Tunisian
investment at a time of solid economic growth. Rather than
pointing to specific economic factors, Tunisians tell us the
possibility of being targeted by corrupt and influential
officials is so great that they no longer have any incentive

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to invest. Diop lamented that "there is no economic solution
to a problem that is ultimately political."

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Comment
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8. (S/NF) Tunisia has long been considered a model for
economic development, but the model has weaknesses and is
losing some of its luster. The GOT continues to tout its
previous economic successes, but the stability it has prided
itself for is beginning to look more like stagnation for too
many Tunisians. Rising inflation, combined with high
unemployment, have fueled growing frustration. Although the
GOT is at the mercy of rising world prices, persistent rumors
of the Ben Ali clan's corruption and conspicuous displays of
wealth have the potential to move the normally apolitical
Tunisian populace to protest. The GOT's censorship and
denial does little to hide economic woes from average
Tunisians and even less to solve the problems. The absence
of press freedoms, allegations of corruption, and lack of
open debate present a major challenges for Tunisian's
continued economic success. For a government that justifies
its rule on the basis of economic growth, the GOT ignores
this situation at its peril. We are not predicting that the
building discontent will spell the end of the regime, but the
potential for continued and growing unrest is there, and of
course, the southern phosphate mining region of Gafsa has a
history of rebellion. Moreover, many Tunisians still recall
the "bread riots" of 1984, when thousands took to the streets
after an increase in the price of bread. In that case the
GOT quelled the protest by lowering the bread price; a
palliative for the current discontent might well be harder to
find. End Comment.


Please visit Embassy Tunis' Classified Website at:
http://www.state.sgov.gov/p/nea/tunis/index.c fm
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