| Kippreport.com

BLOCKED: Politics hinders aid to Arab Spring economies

June 28, 2012 5:22 by Reuters

When Saudi Arabia withdrew its ambassador to Cairo in late April, yields on Egyptian Treasury bills rose and stock prices slipped as investors feared Egypt would be cut off from billions of dollars of Saudi financial aid. The diplomatic row, triggered by street protests in Cairo against Saudi Arabia’s arrest of an Egyptian lawyer, was quickly patched up. The ambassador returned to Cairo within a week and a few days later, Saudi Arabia placed a $1 billion, eight-year deposit in Egypt’s central bank.

 

But more than a year after the start of the Arab Spring uprisings around the Middle East, the incident showed how countries hit by the unrest face uncertain prospects for obtaining foreign aid, which is badly needed to rebuild their economies and ease social tensions.

 

The international community, including the biggest Western economies and wealthy Gulf Arab oil exporters, pledged tens of billions of dollars of assistance last year. But only a small fraction of that sum has actually been handed over; in some cases, aid flows appear to be blocked or slowed by politics, economic policy or tight state budgets.

 

“There is no such thing as a Marshall Plan for the MENA (Middle East and North Africa) region,” said Alia Moubayed, senior economist for the Middle East at Barclays Capital in London, referring to the U.S. aid scheme which helped Europe recover after World War Two.

 

“Resource-rich Arab countries are channelling their financial support directly to Arab Spring countries in need based on their own economic and political strategic interests.”

 

PLEDGES

 

At a May 2011 summit in France, leaders of the Group of Eight major nations pledged some $40 billion of aid, mostly cheap loans, to Egypt and Tunisia over an unspecified time period. There was to be $10 billion in bilateral aid from individual G8 states, $10 billion from wealthy Gulf nations, and $20 billion from multilateral lenders such as the World Bank.

 

In September, the G8 almost doubled the promised sum, adding Morocco and Jordan to the list of aid recipients. Separately, rich Gulf countries decided last year to establish a $20 billion fund to give Bahrain and Oman grants of $10 billion each over 10 years for development and social projects.

 

The donors have strong geopolitical reasons to promise aid: if the Arab Spring economies cannot generate enough growth and jobs, political instability there could worsen and spread to other countries, engulfing the entire region.

 

So far, however, actual flows of money to needy nations have been much smaller than they hoped. Scattered loans and grants have been forthcoming, but generally in the form of a few hundred million dollars here, $500 million there – not nearly enough to solve the severe budget and balance of payments problems faced by Arab Spring countries.

 

Moubayed estimated that of $60 billion of economic aid pledges made to impoverished Arab nations last year, around $15 billion had actually been disbursed.

 

Egypt, for example, was hoping last year for aid flows of well over $10 billion to rebuild its sliding foreign exchange reserves and plug its budget deficit. It has received no more than roughly half that amount; talks on a $3.2 billion loan from the International Monetary Fund have been inconclusive.

 

Bahrain said last week that the $20 billion aid fund announced by its wealthy neighbours over a year ago had not yet been capitalised, though it still expected to receive an initial allocation soon.

 

Some businessmen and economists say the international community risks disaster in the struggling economies of North Africa if it does not do more to help them.

 

“Lacking a comprehensive long-term plan for Arab Spring economies may lead to dangerous consequences, and this could have many political, economic and social effects, including the possibility of a reversal of the situation to even worse than before,” said Adnan Ahmed Yousif, chairman of the Union of Arab Banks and president of Bahrain-based Al Baraka Banking Group.

Pages: 1 2 3