Nothing Succeeds Like Success

If the “Washington Consensus” had more successes, it would have a lot more credibility. Actually, any successes would be welcome. Consider this observation from Michael Gordon at RealClearWorld:

Most Middle Eastern and North African countries need financial assistance, massive infrastructure financing, or humanitarian aid, and the IMF has four active programs in Arab countries totaling billions of dollars. Far from making recourse to the IMF only during times of severe economic crisis, Arab capitals’ relationships with the IMF have evolved to near perpetual dependency. Jordan has had eight IMF programs since 1989, often with one program beginning as another concludes.[i] Egypt in November 2016 negotiated its fifth IMF program — a $12 billion facility. It is hard to imagine these countries freeing themselves from this cycle.

After decades of IMF financing, commitments to reform, and billions of dollars, what have these countries to show? Social indicators such as unemployment, poverty, and income inequality actually worsened in the majority of states that accepted IMF intervention through the 1980s and 1990s — even in those states that “religiously” followed IMF prescriptions.

Three years before Egyptian President Hosni Mubarak was ousted, the World Bank’s Doing Business report ranked Egypt as the world’s top economic reformer.[iii] Yet behind all the growth and capital inflows, average Egyptians saw little benefit from the economic reforms praised by outside observers and investors. Just across the Gulf of Aqaba, Jordan’s economy has fared little better: The official unemployment rate stands at 18 percent.[iv] A third of Jordan’s population lives below the poverty line, and after years of fiscal consolidation, the country’s debt-to-GDP ratio sits precariously at 95 percent.[v]

Years of “reform” have arguably not made these countries or their societies more resilient, and in fact might have contributed to an undermining of social safety nets. In fairness, many of the region’s social programs have long been fiscally unsustainable, but all Arab countries have had implicit social contracts since their independence whereby the state provided a baseline of social welfare, with benefits including health care, education, subsidized food and energy, and often a government job.

It’s hardly a wonder that more and more autocrats are looking to China for inspiration (and money) rather than Washington. There are so many differences between China and the MENA countries it’s hard to see how China can be a model. And as the natural resources on which so many of them depend dwindle China won’t find them nearly as interesting.