Economic impact of the war against terrorism

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The explosions that struck America on Sept. 11 came at a time when the American economy was entering into a recession and the Jordanian economy was showing signs of recovery. The impact on the American economy was devastating, at least in the short run, but what will be the impact on the Jordanian economy? Will the incidents and their consequences hurt Jordan’s economic recovery or benefit the economy?

On its face, bad incidents such as random killing of innocent civilians and destruction of landmark buildings could not be a welcome development. However, Jordan was able in the past to face similar crises and not only absorb the shock and survive the impact, but also to translate them into tangible economic and political gains. The other side of any crisis is, according to Chinese wisdom, the opportunity. As far as Jordan is concerned, the new set of circumstances, following Sept. 11, represents both a risk and an opportunity.

The civil war in Lebanon during the 70s, bad as it was, led to shifting regional offices of major international corporations from Beirut to the safety of Amman. The war between Iraq and Iran in the 80s made Aqaba a major and busy seaport and gave the Jordanian industry a huge 90s, brought to Jordan a flow of foreign aid of over $2 billion and furnished Jordan with Iraqi oil supplies at very favourable terms. Even the expulsion of Palestinians and Jordanians from Kuwait in 1991 created economic prosperity, at least in the short run. The list could go on.

During the first week after resuming trade at Wall Street stock exchange, the American companies’ shares lost around $1 trillion of their value, and the Dow Jones index dropped 13 percentage points. Amman Stock Exchange (ASE) also posted a decline of around 10 per cent, due to uncertainty about the near future, but the ASE is not in the habit of following the world financial markets. In most cases, the trend in Amman was just the opposite. Since New York Stock Exchange is now making a moderate comeback, it is almost certain that the price index of the ASE will resume its previous rising trend.

Jordan will definitely be part of the international alliance led by the United States against terrorism. This may mean more financial aid to come from America and Europe, and a rise in the strategic importance of the country in this sensitive region. The prompt approval of the Free Trade Agreement by the Congress is indicative.

American airlines lost more than $15 billion, and earned a government financial package to bail them out of this crisis. The Jordanian national carrier will also suffer, as 20 per cent of its reservations were cancelled. The effect is believed to be temporary. As foreign arrivals to Jordan drop, Arab arrivals increase. The discrimination against Arab travellers abroad will convince many to shift destinations to Egypt, Jordan, Morocco and Syria.

Based on the above pluses and minuses, the forecast for economic growth in Jordan during 2001 should stand. No need for a revision downwards, although there is no basis for the expected economic growth rate, as we were contemplating just before Sept. 11. The Jordanian economy proved to be resilient, but adjustment takes time and perhaps some casualties.

It may be true that the world will not be the same after Sept. 11, because it may become better and safer. America is reconsidering everything, including its “unevenhandedness” in dealing with the Palestinian question. It may reach the conclusion that the continued occupation and Israeli oppression of the Palestinian people and lack of democracy are the underlying reasons behind the so-called Middle Eastern terror.

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