Viewing cable 07AMMAN483
Title: GOJ OFFICIAL UPBEAT ON PRIVATIZATION, PESSIMISTIC

IdentifierCreatedReleasedClassificationOrigin
07AMMAN4832007-02-04 11:30:00 2011-08-30 01:44:00 UNCLASSIFIED Embassy Amman
VZCZCXRO7334
PP RUEHDE RUEHDIR
DE RUEHAM #0483/01 0351130
ZNR UUUUU ZZH
P 041130Z FEB 07
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC PRIORITY 6777
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHTV/AMEMBASSY TEL AVIV 0400
RUEHJM/AMCONSUL JERUSALEM 4291
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 02 AMMAN 000483 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED 
 
E.O. 12958: N/A 
TAGS: ECON EFIN KPRV JO
SUBJECT: GOJ OFFICIAL UPBEAT ON PRIVATIZATION, PESSIMISTIC 
ON COUNTRY'S FINANCES 
 
REF: 06 AMMAN 8241 
 
¶1. (SBU) SUMMARY: The Chairman of Jordan's Executive 
Privatization Commission (EPC), former Finance Minister 
Mohammed Abu Hammour, painted an optimistic view of the 
progress of privatization in Jordan.  After a record year for 
privatization in 2006, 2007 should also register major 
progress, including sale of Royal Jordanian Airlines.  Abu 
Hammour was very concerned about the growing current account 
and budget deficits, and the country's debt picture.  END 
SUMMARY. 
 
ANOTHER BANNER YEAR FOR PRIVATIZATION AHEAD 
------------------------------------------- 
 
¶2.  (SBU) In a January 28 meeting with the Ambassador, EPC 
Chairman Abu Hammour agreed that 2006 had been a great year 
for privatizations in Jordan (reftel).  However, he expects 
2007 to be great too.  Partial privatization of the national 
airline, Royal Jordanian, will be accompanied by private 
sector opportunities in a BOT to expand Queen Alia 
International Airport.  There will be further government 
tenders for an Amman-Zarqa light railway, a replacement for 
Jordan's sole oil refinery and for a Saudi-Jordan water 
pipeline.  The winners for Queen Alia and Zarqa should be 
announced in April. 
 
¶3.  (SBU) Abu Hammour noted that he had had to defend a 
proposed internal rate of return (IRR) of 15-18% by the 
bidders on some of these projects to conservatives in the 
cabinet fearful of "losing" Jordan's patrimony.  He argued 
that this IRR was necessary to reward investors for the risks 
taken and is typical for such projects worldwide.  He added 
that if the government had to pay for all of the upcoming 
projects, it would raise the country's debt and affect the 
Moody's and S&P ratings of the country's financial health. 
 
¶4.  (SBU) Abu Hammour expects a total of $6 billion in 
privatizations and private sector partnerships over the 
coming years, including those mentioned above.  Some of the 
other projects include state-owned power companies and 
independent power projects.  He expects these projects to 
generate many new jobs, noting that the liberalization of the 
telecoms sector had created at least 7,000 new jobs in Jordan. 
 
WORRIED ABOUT FINANCIAL TRENDS 
------------------------------ 
 
¶5. (SBU)  Abu Hammour, a former Finance Minister known as a 
fiscal conservative, expressed concerns about the current 
state of Jordan's economy.  He was particularly worried by 
the rising budget and current account deficits and the 
prospects for the country's debt burden.  "Things are not 
moving in the right direction," he lamented.  He said the 
budget deficit projected for the 2007 budget is the highest 
in that last four or five years (septel will review the 
budget in detail).  The Saudi grants to Jordan ($300 million 
last year) will help but those grants should not be relied 
upon long-term. 
 
¶6.  (SBU) Abu Hammour was particularly concerned about the 
25% increase in expenditures in this year's budget.  Capital 
expenditures are welcome, he said, but can also add 
longer-term to an increase in current expenditures.  The 
salary increases granted to civil servants pushed by 
Parliament and agreed to by the government will also cause a 
permanent increase in current expenditures. 
 
¶7.  (SBU) Abu Hammour fears that continued government 
over-spending could lead to a repeat of the dire economic 
conditions the country faced in the late 1980's, which 
culminated in Jordan being forced to devalue the dinar in 
¶1989.  Abu Hammour believes government over-spending over 
several years precipitated that crisis.  Currently, 
government revenues are not keeping up with the rapid 
increase in expenditures.  Abu Hammour believes not 
redressing this in the near future in risky. 
 
¶8.  (SBU) Abu Hammour noted that inflation last year was 
6.25% and it is likely to moderate to 5% this year.  However, 
this level is still higher than the base in previous years, 
which was in the 3% range.  With inflation at these levels, 
economic orthodoxy would call for fiscal conservatism not the 
current expansionary fiscal policy. 
 
¶9.  (SBU) Finally, Abu Hammour is worried by the current 
 
AMMAN 00000483  002 OF 002 
 
 
account deficit, at 20% of GDP.  For the first time in years, 
he said, the current account is registering a deficit in both 
goods and services.  To finance it, the government must 
either borrow more, thereby adding to the country's debt, or 
start to draw down on the over $5 billion in foreign reserves 
in government coffers.  Neither approach would be sustainable 
for more than two or three years, he said. 
 
COMMENT 
------- 
 
¶10.  (SBU) Abu Hammour was known as a technocratic Finance 
Minister and a fiscal conservative.  He is certainly correct 
that continuation of the government's current fiscal policies 
is not sustainable over two or three more years.  The twin 
deficits he identifies and government debt are indeed major 
challenges for the government.  Nevertheless, Abu Hammour's 
pessimism is over-stated.  The uptick in inflation last year 
was driven largely by the unprecedented surge in world oil 
prices.  With the current moderation in those prices, 
inflation is moderating as well.  Also, foreign reserves have 
continued to rise over the past several years. 
 
¶11.  (SBU) Jordan's middle and lower classes are still 
struggling with the continuing effects of the higher oil 
prices, the removal of government subsidies of fuel products, 
and a real estate boom, driven by foreign investment by 
Iraqis and the Gulf.  This is driving up prices and making it 
harder for average Jordanians to buy homes.  It is in this 
political context that the government agreed with Parliament 
to raise government salaries.  Although this move has a clear 
fiscal impact, it was politically necessary, particularly in 
a year in which the country will be holding both 
Parliamentary and municipal elections.  In addition, the 
privatization proceeds will be put to work offsetting some of 
Abu Hammour's concerns.  Foreign direct investment continues 
to be positive and changes in tax policies should help 
moderate the revenue shortfall. 
HALE