The civil war in Jordan between the Jordanian army and the armed Palestinian groups based in Jordan, which broke in 1970, ended one year later. The expulsion of the Palestinian armed groups was followed by the 1972 lifting of the Syrian-imposed embargo o n trade and transit, begun as a response to Jordanian support of the PLO. Subsequently, Jordan enjoyed a decade of high-level prosperity. Between 1972 and 1982, real GNP (corrected for inflation) rose by an annual average rate of 9 to 10%, or 5 to 6% pe r capita, a very noteworthy achievement. Investment was far higher than in earlier decades, and in most sectors production expanded rapidly. However, much of the prosperity was due to temporary external stimuli.

Jordan's participation in the Yom Kippur War of 1973 was peripheral. But the oil shock of 1973-74 and the second oil shock of 1979-80 had powerful indirect effects on Jordan's economy. Financial aid from the oil-rich Arab countries assumed much larger d imensions. More important, the booming Arab economies in the gulf attracted many millions of foreign workers, including hundreds of thousands of Jordanians-Palestinians. [The large majority of Jordanian workers in the Gulf countries were Palestinians wit h Jordanian passports. The official Jordanian policy forbids distinguishing between Jordanian citizens of Palestinian origin and other citizens. See Middle East Economic Digest (15 March 1996), pp. 7-15. Unofficial estimates state that Palestini ans account for 60 to 70% of Jordan's population, and a much higher ratio of Jordanians working in the Gulf states.] The remittances they sent home to their families in Jordan stimulated rising prosperity.

In addition to substantial aid and workers' remittances, the boom in the neighboring Arab oil states opened up markets for Jordanian products, and also benefited Jordan in other ways—while it lasted. Both because of the exodus of hundreds of thousands of Jordanians to work abroad, and the increasing domestic demand for workers, Jordan reached full employment in the mid-1970s and became a labor importer, mainly of unskilled manual laborers from Egypt and from other poorer Arab countries. The Jordanians-P alestinians working in the Gulf countries were, on average, more educated and more skilled, and hence better paid, than those coming to the Gulf from other Arab countries.

But in 1981 oil profits peaked and in the following years Saudi oil revenues, as well as those of the other Arab oil states, declined rapidly. Saudi Arabia and some other oil states began to incur deficits (both budgetary and in the current account of th e balance of payments) in 1983, and these deficits persisted in the following years—until today. One of the first items curtailed was foreign aid from the rich to the poor Arab countries. Budgetary cutbacks in Saudi Arabia and in other rich Arab states, coupled with an overall curtailment of economic activity in the Gulf countries, led to a reduced demand for foreign labor. Those foreign workers who did retain their jobs, including hundreds of thousands of Jordanians-Palestinians, suffered cutbacks in salaries. But even if relatively few Jordanians-Palestinians were fired, few additional ones were hired.

The result of these developments was a deepening recession in Jordan. Between 1982 and 1987 GNP was stagnant as compared with a very rapid growth of 10% per annum in the previous five years. As a result of the recession within Jordan and in the Arab Lab or-importing countries, rising unemployment took hold in Jordan, in sharp contrast with the labor shortages which had prevailed between the mid-1970s and mid-1980s.

The plethora of foreign aid, as well as income from other sources, had made the government lax in its spending habits and large budgetary deficits emerged during the 1970s and even more so during the 1980s. The subsequent decline in foreign aid after 198 2 was not matched by substantial budgetary cutbacks. But while in the 1970s Jordan was able to cover its deficits mainly by concessional (long term low interest) loans, during the 1980s more and more of the deficits were covered by high-interest commerci al loans mainly from external sources. The result of these policies was a growing balance of payments deficit, declining foreign exchange reserves and a much larger and more onerous burden of foreign debt. [For reasons and details see Eliyahu Kanovsky "J ordan's Economy: From Prosperity to Crisis" in Ami Ayalon and Haim Shaked, eds. Middle East Contemporary Survey Volume XII, (Boulder: Westview Press, 1990), pp. 333-369.]

The crisis came to a head in 1988. Amman began to default on its external loans. This was soon followed by a sharp devaluation of the Jordanian dinar, in order to reduce imports and stimulate exports. The so-called Paris Club of lenders to Jordan resch eduled the debts. An agreement with the International Monetary Fund was concluded which called for an austerity program, including sharp cutbacks in food subsidies. Eleven people were killed in rioting triggered by the steep rise in food prices.

Things were going from bad to worse. Living standards which had risen strongly in 1972-1982 dropped sharply during most of the 1980s. But possibly the most severe problem was rising unemployment, especially among the more educated, in particular univers ity graduates. Until the mid-1980s Jordanian university graduates, in growing numbers, had no problem finding lucrative jobs in the Arab Gulf countries. But when oil incomes declined sharply in the neighboring Arab states during the 1980s, and budgetary cutbacks were imposed, the demand for Jordanian university graduates fell drastically. What emerged was an incongruous situation in which educated Jordanians looked for work at home, while large numbers of foreigners were working in Jordan. They viewed jobs involving manual labor as demeaning. In 1989 and in early 1990 there were an estimated 100-120 thousand unemployed Jordanians—about 20% of the labor force—and some 175-200 thousand foreigners working in Jordan. The latter were mainly manual labore rs in agriculture, industry, construction and some services. The number of Jordanians working in the Gulf states in 1989 was estimated to be 328 thousand, aside from accompanying family members.

A British economic journal summarized the situation in Jordan in early 1990 (before the Iraqi invasion of Kuwait) as follows: "The economic situation is so bad . . . that renewed and spontaneous outbreaks of popular unrest cannot be ruled out . . . Jordan ians are. . . faced by rising unemployment, high inflation and frozen salaries. There is still bread to eat (due to subsidies), but a few other comforts . . . for the majority there is little prospect of a change . . . for the next five or probably ten y ears. With popular resentment over past corruption still acute, and with little prospect of a substantive economic improvement, the political situation remains explosive." [Economist Intelligence Unit, Country Report - Jordan No. 1, (1990), p. 4.]

The Gulf War and the Jordanian Economy

The immediate aftermath of the Gulf War of 1990-91 was an even more depressed Jordanian economy. Jordan made the costly mistake of siding with Iraq. The consequences were dire: Saudi Arabia and Kuwait cut off all aid to Jordan, which, although reduced t o $500 million in 1989 from its early 1980s high of $1.2 billion, was still substantial. The US also suspended its aid program to Jordan, while UN-imposed sanctions on Iraq had an adverse effect on Jordan's economy as well. Jordan had been an important route for the transit of goods to and from Iraq, and Iraq was also a major buyer of Jordanian products. The UN sanctions sharply reduced Iraqi oil revenues, forcing the latter to cut back drastically on all imports, including those from Jordan. Tourism was also adversely affected. But possibly the most difficult blow, in the short run, was the mass expulsion of Palestinians from Kuwait and to, a smaller extent, from Saudi Arabia. [For details and sources see Eliyahu Kanovsky, The Economic Consequenc es of the Persian Gulf War: Accelerating OPEC's Demise (Washington, DC: The Washington Institute for Near East Policy, 1992): pp.64-70.]

As to the number of refugees who settled or resettled in Jordan there are differing estimates. One source states that about 300 thousand Palestinians-Jordanians expelled from Kuwait settled in Jordan. [Gulf States Newsletter (20 May 1996), p.2.] Another source gives an estimate of 350 thousand Palestinians-Jordanians, noting that this added about 10% to Jordan's population. [Omar Razzaz, "Urban Settlement Around Amman," Middle East Report (March-April 1993), p.14.]

Another source states that before the Iraqi invasion there were an estimated 450 thousand Palestinians-Jordanians in Kuwait. Following the expulsion only 32 thousand were allowed to remain. Despite the post-liberation policy of Kuwait's rulers of holdin g down the number of foreigners, by 1994 there were more foreign workers in Kuwait than Kuwaiti nationals. The Palestinians had been replaced mainly by workers from the Asian countries as well as by Egyptians. [Economist Intelligence Unit, Country Pro file-Kuwait (1994-95) p.9; Financial Times Survey-Kuwait (23 May 1995), p.iii, states that 400 thousand Palestinians-Jordanians were expelled from Kuwait.]

Regardless of the precise numbers of expelled workers, it is clear that Jordan had to cope with difficult problems. The outlook was grim before the Iraqi invasion of Kuwait, and the massive influx of refugees (officially called returnees), concurrent wit h a cessation of aid from the richer Arab countries and from the US, only made matters worse. However, by 1991 the US announced its resumption of aid to Jordan. Moreover, aid from Japan and from a number of European countries, amounting to over one bill ion dollars, came to the rescue at a critical time. [Financial Times (31 May 1991), p.4.]

The immediate impact of the austerity program adopted in the later 1980s was recessionary. Between 1987 and 1991 GDP (corrected for inflation) fell to a disastrous 13%, and on a per capita basis by 21%. But this was followed by four years of rapid growt h, with GDP increasing by 38% between 1991 and 1995, or 13% per capita, over the four-year period. [International Financial Statistics-Yearbook 1996 (Washington, DC: International Monetary Fund, 1996), p.465.] An IMF report (1996) states that Jord an had begun to move in the right direction in terms of economic policies. The report notes that budgetary deficits had been cut back very sharply, mostly through curtailing spending rather than by imposing higher taxes. The report also notes that econo mic policies have been adopted which foster investment and growth. The finance minister was particularly optimistic, asserting (in January 1996) "Jordan has reached a stage of sustained growth." [Middle East Economic Digest (26 January 1996), p.19 .]

Paradoxically, one of the important reasons for the sharp turnaround in the Jordanian economy since 1991 was the large influx of Palestinians-Jordanians expelled from Kuwait. In many cases the new refugees came with their savings, skills and entrepreneur ship, giving a powerful boost to Jordan's small economy, both through a massive expansion of housing construction and investment in new or existing businesses. According to one report, the refugees brought in about $1.5 billion, much of it for housing co nstruction. This was a massive infusion into an economy with a GNP of $5 billion in 1992.

But while the above-mentioned IMF report gave very good grades, overall, to the new economic policies, it also noted that between 1991 and 1994 there was a major increase (15%) in public sector employment and a 40% rise in the real (inflation-adjusted) wa ge bill. Padding the public payroll can only be detrimental to longer term economic growth.

Despite the relatively strong rate of economic growth since 1992, unemployment is still inordinately high, ranging between 15-20% according to various official estimates, and far higher according to unofficial sources. [Economist Intelligence Unit, Qua rterly Economic Review-Jordan Third Quarter (1996), p.13.] Another source of concern is the "growing social disparity, with a tiny rich elite living in enormous new mansions, surrounded by increasing poverty." [The New York Times (30 June 1996 ), pp.1E,3E.]

The very wide and growing gap between the few rich and the many poor may well foster revolutionary unrest and political instability. IMF pressures on Jordan's government to cut back sharply on food subsidies, in order to curtail budgetary deficits, raised the prices of basic foods and especially of bread. The reaction was severe rioting in southern Jordan in August 1996, which was suppressed by the regime. In many respects it was a repetition of the riots in 1988—and for similar reasons. The widening g ap between rich and poor, high rates of unemployment, inflation, and other socio-economic ills may well be exploited by the Islamists and others who oppose the regime and the peace agreement with Israel. In the fall of 1996 the prime minister stated in p arliament that there had been thirty-six attempted terrorists incidents in Jordan in the past six months, and King Hussein accused Syria of trying to destabilize the country. [Economist Intelligence Unit, Quarterly Economic Review-Jordan Thi rd Quarter (1996), p.10.] Rising unemployment and inflation, and falling living standards for the large majority, while a small minority engages in conspicuous consumption, can only add fuel to the terrorist fire.

The Israel-Jordan Peace Agreement of 1994: The Economic Dimension

It was widely believed that, in the aftermath of the Jordan-Israel peace agreement concluded in 1994, there would be economic cooperation yielding substantial economic benefits to all participants. It is well to recall that the Israel-Egypt agreement of 1979 was also expected to be followed by economic cooperation in many fields, to the benefit of both sides. In reality economic cooperation between Israel and Egypt was, and is, hardly significant. But, in 1994, many believed that with Jordan things wou ld be different.

Three international conferences have taken place, designed to foster economic cooperation and investment in the Middle East, in Casablanca in 1994, Amman in 1995 and Cairo in 1996. However, as The Economist noted, the conferences "produced a rash of high-minded proposals . . . which did not happen." The article is entitled, "Middle East Economic Integration? You Have to be Joking." [The Economist (16 November 1996), pp.57-58.] The Cairo conference was hardly different in this respect from its predecessors.

What economic gains did Jordan obtain from its peace agreement with Israel? Mainly the cancellation of the $705 million debt to the US which was followed by the UK's cancellation of debts totaling $90 million, Germany $53 million and France $4.5 million. [Report of the US Embassy in Amman (October 1994).] Jordan also gained from an influx of Israeli tourists, and there are some joint Israeli-Jordanian projects related to tourism which may be implemented. Insofar as the main goal of the conference is co ncerned, namely attracting substantial foreign private investment, there are very few results. [Middle East Economic Digest (5 January 1996), p.10; (25 October 1992), p.2.] The feeling of many in Jordan seems to be that "they are no better off to day because of peace and may even be worse off." [The Middle East (October 1996), p.20-21.]

Why has there been so little in the way of Arab-Israel economic cooperation, including with Jordan, which normally has a much better relationship with Israel than other neighboring Arab state? There seems to be a fear that Israel's larger and far more dev eloped economy will give Israel all the advantages. An Egyptian economist, Mahmoud Abdel Fadil, speaks of the "hegemonic dominance" of Israel's economy. [The Middle East (September 1994), pp.22-24.] Taher Masri, a former prime minister of Jordan stated: "Israel has a huge economy, compared to Jordan's, and it (Israel) does not have to bargain so hard." [Financial Times (4 April 1995), p.7.] In other words, Israel should make all of the concessions.

What about the disarmament which some envisioned would follow the conclusion of Arab-Israel peace treaties? As one military analyst has phrased it, "No sooner had Jordan signed a peace treaty with Israel in 1994 that its wish list of US military equipment was dispatched to Washington." [Middle East Economic Digest - Special Report: Defense, (12 April 1996), pp.6-10.] This was the pattern set by Egypt following its peace agreement with Israel in 1979. Actually, there had been a De Facto peace betw een Israel and Jordan for at least twenty years prior to the conclusion of the formal peace agreement in 1994. The king candidly explained his country's request for US arms: "Our problem is not one of particular frontier . . . but all of them." [The W all Street Journal (24 March 1995), p.A10.] In other words, Jordan fears Syria, Iraq and the new Palestinian entity.

Following the conclusion of the Israel-Jordan peace agreement in 1994, an unnamed "economist based in Amman" commented as follows: "Jordan will have a couple of good years (due to foreign) aid. Then it will have to depend more on its own resources. They are busy trying to milk the cow of peace, but they also have to streamline their own economy." [Middle East Economic Digest (30 September 1994), p.3.] Jordan must take more drastic measures internally to improve its economy. The peace agreement can contribute marginally to economic improvement. However, the crucial economic issues and problems facing Jordan are largely of domestic origin and therefore require, more than anything else, far-reaching changes in domestic economic policies.