Identifier
Created
Classification
Origin
09AMMAN611
2009-03-05 04:00:00
CONFIDENTIAL
Embassy Amman
Cable title:  

JORDAN CONSIDERS STIMULUS PACKAGE TO AID ITS

Tags:  EAID ECON EFIN JO PGOV 
pdf how-to read a cable
VZCZCXYZ0000
PP RUEHWEB

DE RUEHAM #0611/01 0640400
ZNY CCCCC ZZH
P 050400Z MAR 09
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC PRIORITY 4607
INFO RUEHGB/AMEMBASSY BAGHDAD PRIORITY 6188
RUEHLB/AMEMBASSY BEIRUT PRIORITY 3024
RUEHEG/AMEMBASSY CAIRO PRIORITY 3960
RUEHDM/AMEMBASSY DAMASCUS PRIORITY 4116
RUEHRH/AMEMBASSY RIYADH PRIORITY 2115
RUEHTV/AMEMBASSY TEL AVIV PRIORITY 1603
RUEHJI/AMCONSUL JEDDAH PRIORITY 0855
RUEHJM/AMCONSUL JERUSALEM PRIORITY 5405
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
C O N F I D E N T I A L AMMAN 000611 

SIPDIS

STATE FOR NEA/ELA AND EEB

E.O. 12958: DECL: 03/05/2019
TAGS: EAID ECON EFIN JO PGOV
SUBJECT: JORDAN CONSIDERS STIMULUS PACKAGE TO AID ITS
ECONOMY

REF: A. AMMAN 516

B. AMMAN 472

C. 08 AMMAN 3121

D. 08 AMMAN 2982

E. 08 AMMAN 2366

F. 08 AMMAN 1392

Classified By: Ambassador R. Stephen Beecroft for
reasons 1.4 (b) and (d)

C O N F I D E N T I A L AMMAN 000611

SIPDIS

STATE FOR NEA/ELA AND EEB

E.O. 12958: DECL: 03/05/2019
TAGS: EAID ECON EFIN JO PGOV
SUBJECT: JORDAN CONSIDERS STIMULUS PACKAGE TO AID ITS
ECONOMY

REF: A. AMMAN 516

B. AMMAN 472

C. 08 AMMAN 3121

D. 08 AMMAN 2982

E. 08 AMMAN 2366

F. 08 AMMAN 1392

Classified By: Ambassador R. Stephen Beecroft for
reasons 1.4 (b) and (d)


1. (SBU) Summary: Ministry of Finance (MoF) officials said
the government is developing a $212 - $258 million stimulus
package to help the private sector weather the global
economic crisis (ref B). While the package must still be
approved by the Cabinet and Parliament, potential projects
include real estate sector support, small agricultural
grants, poverty alleviation, and water projects. Financing
for the package may come from current expenditure funds that
were originally intended for fuel and food subsidies and the
cancellation of some commodity tax exemptions. Officials
explained that the difficult financial situation will limit
the budget options available to the new Minister of Finance.
Critics have questioned the relative effectiveness of
agriculture and real estate projects to stimulate the
economy. End Summary.

What's in the Stimulus Package?
--------------


2. (SBU) Dr. Ismail Zaghloul, Director General of the Budget
Department, informed EconOff on February 24 that a small
committee consisting of himself, the Secretary General of the
Ministry of Planning and International Cooperation Nasser
Shraideh, and the Secretary General of the Ministry of
Finance Izzeddin Kanakrieh, were working to develop a fiscal
stimulus package as a budget supplement to address the
weakening economic situation (refs B, D). The committee
reviewed $847 million in program ideas submitted by
individual ministries and identified $212 - $258 million in
suitable projects focused primarily on real estate and
agriculture. Zaghloul said they were looking for projects
that could be implemented in 2009 with low import content,
high amounts of Jordanian labor, and high added value. In a
separate meeting with EconOffs, Kanakrieh noted that other
selected projects will focus on poverty alleviation, water,
road construction, and infrastructure development.


Where Is the Money Coming From?
--------------


3. (SBU) Zaghloul explained that the stimulus package will be
primarily funded with monies reallocated from current account
expenditures, notably liquefied petroleum gas (LPG),wheat
and barley subsidies (ref E). He said that current low world
market prices of these commodities have eliminated the need
for government support to offer the products at the stated
"subsidized" price. When the stimulus package is presented
to the Cabinet in mid-March, MoF will present a
recommendation to simultaneously end these subsidies. While
hopeful that such a recommendation would be accepted,
Zaghloul acknowledged that the Cabinet and the Parliament
could accept the stimulus package and reject the subsidy
cessation plan. Kanakrieh said that some funds would also
come from the end of a tax exemption on common foodstuffs
that was put into place when food prices spiked during summer
2008 (ref F).

Fiscal Policy Not Likely to Change with New Minister
-------------- --------------


4. (C) The next step is for newly appointed Finance Minister,
Bassem Salem, to study the stimulus plan before it is
submitted to the Cabinet and Parliament for approval (ref A).
In a meeting with EmbOff on March 3, Salem, who served
previously as Minister of Labor, said that he was eager to
prop up employment, especially in the construction sector,
and had some reservations about the current package.
Kanakrieh, however, predicted few significant fiscal policy
changes with the new minister this year. He said there is
little flexibility in the current expenditures because
government salaries, which account for the majority of the

budget, are already committed. He added that any decrease in
capital expenditures would hurt the economy and summarized
that "there aren't many scenarios to consider."


5. (C) Zaghloul said the government is torn between a desire
to grow the economy and to manage the budget deficit.
Kanakrieh agreed that if the government cut costs it would
push the country further into a recession. He said the
budget deficit will grow and will require debt to pay for it
but the country's debt ceiling of 60% of GDP will present a
challenge. Kanakrieh reiterated the GOJ's need for U.S.
assistance (ref B).


6. (C) Center for Strategic Studies' Director Dr. Ibrahim
Saif said that the government needs to look at its tax
structure and that the richest individuals and businesses
should pay more to reduce the budget deficit. Saif argued
that it will be impossible to have tax reform in Jordan
without corresponding political reform. Although some have
claimed that there is currently no political will to increase
taxes, Salem indicated to EmbOff a greater willingness than
the previous minister to push through a tax reform bill that
will streamline tax administration and create mostly lower,
flat corporate taxes to stimulate investment. The Minister
agreed that coupling tax reform with this stimulus package
seemed to make political sense.

Criticism of the Stimulus Package
--------------


7. (SBU) Critics agreed that the government must play a role
in stimulating the economy but were skeptical of the choice
of real estate and agriculture as the primary recipients.
Saif noted that agriculture is the least efficient sector in
Jordan and only generates 2% of GDP. He also commented that
these two sectors employ relatively few Jordanians and rely
instead on Egyptian expatriate labor. When asked, Zaghloul
agreed that the majority of workers in construction and
agriculture were Egyptian but said that the committee was
trying to add a requirement to the stimulus package to
encourage Jordanian employment.


8. (SBU) Envision Consulting Group CEO and economist Dr.
Yusuf Mansur also disagreed with the government's plan to use
savings from current expenditures for real estate projects
directly. He recommends instead that the government focus on
solving the liquidity and credit crunch, which is impacting
real estate, and reducing the high interest rates on all
business loans (ref B). Pointing out the wide disparity
between interest rates in the U.S. and Jordan, he questioned
why the local rates had not yet come down significantly. He
speculated that the growing amount of loans to the GOJ by
commercial banks was crowding out all other borrowers and
keeping rates high. Above all else, he highlighted the need
for the government to instill confidence in the economy.

Visit Amman's Classified Website at:
http://www.state.sgov.gov/p/nea/amman
Beecroft