"MANAGING GROWTH" OR "CONFRONTING CRISIS:" MOROCCO

UNCLAS SECTION 01 OF 02 RABAT 000171

SENSITIVE
SIPDIS

STATE FOR NEA/MAG AND EEB/TPP/BTA (EGAN)
STATE PASS USTR (BURKHEAD)
USDOC FOR ITA/MAC/ONE (MASON),ADVOCACY CTR (TABINE),AND
CLDP
(TEJTEL AND ELKSTOUF)
CAIRO FOR FINANCIAL ATTACHE (SEVERENS)
LONDON AND PARIS FOR NEA WATCHER

E.O. 12958: N/A
TAGS: ECON EFIN EAGR ETRD MO
SUBJECT: "MANAGING GROWTH" OR "CONFRONTING CRISIS:" MOROCCO
DEBATES ITS POSITION

REF: RABAT 119

RABAT 00000171 001.2 OF 002


Sensitive but Unclassified - Not for Internet Distribution.


1. (SBU) Summary: Dueling events on February 24 highlighted
contrasting views of how and when Morocco will be impacted by
the international financial crisis. In Rabat, Prime Minister
Abbas El Fassi presided over the signature of conventions
that implement the government's USD 150 million in initial
"emergency measures" to address the downturn's emerging
impact on the textile, leather, and automotive industries.
Finance Minister Mezouar conceded that the measures are not
"spectacular," but argued that they do not need to be: "this
is not a stimulus policy," he stressed, but one of "support
for growth." At the same time in Casablanca, economists
debated how Morocco should respond to the crisis at the
annual conference of the country's leading economic think
tank, with Tourism Minister Boussaid rebutting criticism that
the government has been slow to respond by stressing that
growth will exceed six percent this year and that there is
"no need to panic." End Summary.


2. (U) The 1.3 billion MAD (150 million USD) in support for
the three most impacted sectors of the economy-- textiles,
leather, and auto parts-- follows the outline that Mezouar
provided earlier this month (reftel). 800 million MAD is
allocated to reimbursing companies for part of their social
security expenditures. Companies that maintain 95 percent of
their workforce and do not lower salaries are eligible to
have 20 percent of such expenditures reimbursed by the
government. In addition, to ensure that companies retain
access to sufficient liquidity to continue to operate, the
government reinforced its system of bank guarantees, leading
Moroccan banks to agree to maintain the lines of credit that
they opened to the private sector in 2008, and to grant a
one-year moratorium to companies that request it. Finally,
companies are eligible to draw on the 500 million MAD that
the government has allocated to its ambitious two-year export
promotion strategy (septel).


3. (U) Finance Minister Mezouar was careful not to oversell
the measures in his public comments at the convention
signings. He argued that they were in line with the
government's attempts to craft a pragmatic, public-private
response to a crisis whose implications for Morocco are only
now becoming evident. "They do not constitute a stimulus
program," he stressed, but a "support for growth." He added
that his recently instituted strategy committee (reftel) will
continue to meet to work on other measures for other sectors.
Measures under consideration include reducing port charges
and permitting companies that imported material temporarily
for re-export, but now find that their foreign markets have
dried up, to sell up to 15 percent of such products on the
domestic market.


4. (U) At the same time that the conventions were signed, the
"Centre Marocain de Conjoncture" (CMC),the country's leading
economic think tank, organized its annual economic conference
in Casablanca on the impact of the crisis and appropriate
policy responses to it. While CMC president Habib El Malki
pressed for a "national growth pact," arguing that government
efforts to diversify and modernize the economy have been too
haphazard and uncoordinated, many speakers emphasized instead
the "Moroccan exception" and the strong position from which
Morocco confronts the crisis. Chief among them was Tourism
Minister Mohammed Boussaid, the designated government
representative at the event, who predicted that growth this
year will exceed 6 percent, and that "we mustn't react to
things that aren't there." There is "no need for panic," he
argued, "we must be flexible and react as the crisis
develops."


5. (U) The Central Bank's Director of Studies, Karim El
Aynaoui, echoed this positive message, stressing that
positive statements by Bank Governor Abdellatif Jouahri,
among others, stem not from "myopia" but from economic
realities. He pointed out that the crisis hit after the
longest period of growth in Moroccan history, and that while
industry will have to adjust prices in the face of falling
demand, Morocco has unique strengths in the face of what is

RABAT 00000171 002.2 OF 002


primarily a "debt crisis." The country largely finances
itself, its budget has been balanced over the last two years,
and its overall debt level has fallen to 48 percent of GDP.
The country's financial sector is in a very strong position,
and continues to provide financing to the real economy, with
credit growing by 22 percent over the past year. Aynaoui
contrasted the health of Morocco's banking sector, with only
4 percent of private bank lending in distress, to the frozen
credit markets in the U.S. and Europe, arguing that "we don't
have a credit cruch here," and a rescue plan is unnecessary.
He conceded that the slowdown in Europe will affect Morocco,
estimating that each drop of 1 percent in European GDP lowers
Moroccan GDP by 0.4 percent, but noted the silver lining in
falling commodity prices. Both imports and exports will fall
by up to 18 percent, he predicted, but the result will be an
easing of the balance of payments, given that imports start
from a larger base. He noted that Morocco already recouped
in January the decline it experienced in foreign exchange
reserves last year, with reserves rising at the end of
January to 187 billion MAD.


6. (U) Other speakers were more nuanced in their appraisal of
the situation. Hamad Kassel, of Morocco's leading business
organization, CGEM, noted that key sectors of the Moroccan
economy have been impacted, showing that "we are not immune."
Investors are shelving projects, small companies in
particular face a "crisis" in financing, and export-oriented
economies enter the crisis in a weak position, given their
lack of competitiveness and pre-existing problems. He echoed
Mezouar's appeal for public-private coordination, and urged
that the government take advantage of the crisis to improve
Morocco's business environment, noting recent slippage on
many indices. A recent survey by CMC confirmed Kassel's
assessment of the crisis's impact, with nearly 80 percent of
respondents already noting that they have "felt" the crisis,
primarily through a decline in exports (32 percent),
reduction in orders (61 percent) and impact on cash flow (67
percent). Surprisingly, but buttressing Aynaoui's optimistic
assessment of the banking sector, only 10 percent reported a
change in the attitude of their banks. Most significantly,
98 percent expect the crisis to expand and impact the economy.


7. (U) How extensive that impact will be in Morocco remains
an open question. Analysts do not all share the government's
high growth projections (in addition to the government's 6
percent, the High Planning Commission (HPC) has predicted 6.7
percent),but even the CMC's "worst-case" scenario forsees
the economy growing at a 4.8 percent rate this year and 3.4
percent in 2010. The center's "more likely" base case, which
anticipates a 1.7 point reduction in GDP growth (as opposed
to the "worst-case's" 2.7 points) forsees growth of 5.2
percent in 2009 and 4 percent in 2010.


8. (U) Comment: This year's promising agricultural outlook
has sparked increased optimism among government and private
observers of the Moroccan economic scene. If in the past
sustained non-agricultural growth cushioned downturns in
agricultural production, this year the shoe is on the other
foot and Morocco is relying on an exceptional harvest to
balance out difficulties elsewhere. But with the larger
crisis impact emerging in 2010, much will depend on that
year's agricultural output: any recurrence of Morocco's
recent droughts would greatly compound Morocco's
difficulties. End comment.


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