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IMFSurvey Magazine: Countries & Regions

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Middle East Needs Jobs, Governance to Fulfill Promise of Arab Spring

Bread vendor in Cairo: Greater access to financing could help spark growth in the region, participants at an IMF seminar said (photo: Newscom)

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Middle East Needs Jobs, Governance to Fulfill Promise of Arab Spring

IMF Survey online

September 26, 2011

  • IMF Seminar underscores need for good governance in Arab countries
  • Governments should not "crowd out" private sector access to finance
  • Better targeted subsidies, other social protections needed for the vulnerable

The Middle East needs more jobs, better governance, and a strong civil society in order for the transformation that began with the Arab Spring movement to thrive in the long term, panelists said at an IMF seminar.

At a seminar entitled “Beyond the Arab Spring: Restoring Economic Confidence, Meeting Social Needs,” a distinguished panel of speakers from the Middle East, North Africa, and Pakistan acknowledged the region’s progress toward building free and democratic societies. But they cautioned that this progress must be accompanied by urgent economic reforms if the change is to be lasting.

“Growth is not enough,” said IMF Deputy Managing Director Nemat Shafik, who moderated the session. “The Arab Spring demonstrates very visibly that, if it does not create enough jobs for the growing labor force, if its gains are not spread broadly and instead only captured by a privileged few; and if it is not accompanied by good governance and protection of the most vulnerable, growth will fail.”

Building a democratic culture

The debate centered on three main issues that are crucial for giving citizens better access to economic opportunity: governance and the business environment, access to finance, and protecting the most vulnerable.

Good governance, the group agreed, is a fundamental precondition for economic development in the Middle East.

Panelist Shaukat Tarin, former Finance Minister of Pakistan who is now Advisor to the Chairman of Silkbank, said that the pervasive culture of “crony capitalism” in the Middle East stems from the lack of a democratic culture. “Political parties that come into power have no history of inclusive and accountable democracy within their own ranks, and usually they gravitate toward charismatic leaders,” he observed. Because of this legacy of authoritarianism, he said, the region will need to strengthen its institutional framework for democracy.

Rather than look to the past, panelist Ahmed Galal noted that in the newly democratic Middle East, strong governance was critical.

“It is through good governance that you can have policies that serve the interest of the majority of the population, because everybody has a voice,” said Galal, who is Managing Director of Egypt’s Economic Research Forum. “It is also through good governance that governments can make credible commitments, because people will believe them.”

Panelist Jaloul Ayed, Tunisia’s Minister of Finance, noted that transparency is essential for good governance. “Empowering citizens is important, and that means giving them information,” he said. If citizens are able to see documents online that show a government has promised to build a school, a road, or a hospital, they are able to hold their leaders accountable.

In a country such as Tunisia with high Internet penetration rates—about a third of Tunisia’s population is on Facebook—technology can be a powerful tool, he said.

Panelist Amat Al-Alim Alsoswa, Director of the UNDP’s Regional Bureau for Arab States, said it was important to focus on the potential contribution of young women to the region’s economy. She cited the progress made by the region’s women in the past decade, achieving excellence in education and joining arenas where they hadn’t previously been permitted entry. Still, Alsoswa stressed, women were not yet on an equal footing with men, and it was not surprising to see them take to the streets during Arab Spring demonstrations.

“We don’t put enough emphasis on how to utilize this wonderful asset that we have,” Alsoswa said.

Access to finance

“One of the huge flaws of the anciens régimes was the fact that economic power was in the hands of a few,” Shafik observed. “How can the people of the region ensure that what comes next is fair?”

Governments need to promote small and medium-sized enterprises, panelists unanimously agreed. But just how to do this was a topic of heated debate.

Tarin stressed the key role that microfinance has played in Pakistan and elsewhere in his region. “Through microfinance, people have created jobs, savings, and now they’re self-funded.” Governments should establish small and medium-sized enterprise development authorities, credit guarantee funds, and a regional microfinance bank, he argued.

Galal countered that in countries like Egypt, which are still struggling to draft a new constitution and manage the political transition, microfinance is not the solution. Access to finance is only one obstacle among many faced by businesses, he said.

In his view, the answer to the problem of financing access needs to be founded on less borrowing by the government. “The biggest issue in access to credit is that the government should balance its books so they don’t crowd out everybody else—big, small, or medium [sized businesses],” Galal said.

Protecting the vulnerable

Subsidies have historically been a large part of the social protections provided in this region, Shafik said. With the fiscal burden of these subsidies becoming unsustainable, how can the region protect its poorest and most vulnerable?

Tarin observed that subsidies need not be abandoned altogether—instead, they ought to be targeted to those who need them the most. Energy subsidies, panelists noted, are poorly targeted, often benefiting the rich more than the poor, since they are the ones who consume the most gas and electricity. In Pakistan, Tarin said, the government conducted physical assessments of households’ income levels as a method of ensuring that subsidies were appropriately targeted.

Other panelists noted that governments could do more to prevent groups from becoming vulnerable in the first place through socially conscious policies that promote education and healthcare.

At the seminar’s conclusion, Shafik asked each panelist to name two key conditions necessary for the Arab Spring to thrive. They agreed that political and financial support was essential. But to attract and keep this support, the region must engage in the right reforms.

Building a strong civil society to hold governments accountable was seen as equally vital: “Civil society is the best hedge against extremism,” said Ayed.

And while the region needs the financial support and know-how from the outside, the international community must understand that the Arab Spring is a homegrown movement and operate with humility in the region, panelists said.

“It’s heartening to see people empowered,” said Alsoswa. “I hope the Arab Spring is not just a season but rather a long-term objective.”


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