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Magic Mainstream Economic ReformYesterday the Minister of Planning and International Cooperation from Jordan (yes, we are not making this title up), mr Imad Fakhoury dazzled his hosts at the World Bank Group - IMF Annual Meetings in… drumroll please… Lima… Peru!

That's right. Let it never be said that the World Bank / IMF apparatchiks are not all about equality. As long as there is a five star hotel and they don't have to pay for it, they are willing to meet wherever is "necessary"… flying first class… of course.

Mr Fakhoury enlightened the audience with the following statements:

"We’re one of the few countries in the Middle East that doesn’t have oil."

"By 2010, we adopted a law in energy efficiency so we set up the framework to implement the strategy"

"The government went straight into a macroeconomic stability programme."

"We removed all subsidies on fuel products, offered incentives for hybrids and encouraged an aggressive diversifying approach"

In this spirit, the International Finance Corporation’s executive vice president and CEO, Jin-Yong Cai emphasized that the money for green investments is there but the infrastructure is not.

"For an energy project to succeed on a larger scale, you have to have solid transmission and distribution networks."

You can read all in the article "Fakhoury highlights Kingdom’s economic reform measures" from The Jordanian Times.

That's enough.

You get the gist of it.

Allow us to summarize:

Jordan lacks oil. Jordan can't afford to pay for oil. Jordan is subsidizing green tech. Jordan does not have an energy infrastructure. Jordan is borrowing to produce an economic stability environment.

Now, allow us to translate:

Jordan is screwed. Energetics are too expensive. Green tech is a pipe dream, at least 20 or 30 years into the future in the best case scenario. Thus, let's borrow from the IMF and spend to create a mirage of "stability". Clear? Goooooood!

Every time you hear a politician stating that they will create "stability" you know that they will start screwing around with the economy. You absolutely, positively, definitively know that one way or another they are going to go into a spending spree. Why? How else can a government provide an "economic boost" if the economy is going down the drain precisely because of government action?

Of course, the excuses for such acts will vary. In the case of Jordan is "energetics". But if you look at other countries, yours for example, you will notice that the excuse will be different. It could be "stagnation"… something must be done or "mismanagement"… by the other party (during election time) or "inflation"… and the need to fight the crisis or "scarcity"… and evil market speculators or… or… or… the excuses and endless and usually not too creative. Truth be told, after 200+ years of selling the same old stories, they have become quite repetitive. Basically, governments have run out of fresh excuses and very unfortunately, they can't manufacture a space invasion or a new glacial age. But this won't stop them. They can and do manufacture pandemics. H1N1 anybody, and the suspicious re-definition of "pandemic" by the WHO? Ejem!

But let's go back to Jordan.

Again, this has all been done before.

What you have heard from Jordanian, World Bank and IMF apparatchiks is the old, same old same old story. There is a problem and it cannot be solved by industry. It requires massive government subsidies and planning.

Fortunately enough, we do have a counter example which was cut short in this matter. It is the story of the UK Electric Grid. You should read all about it here.

The short story is simple. There is always an economic reason why things are not there and the reason is simple: people don't want to pay for them! If they would be willing to pay for them, then we would have them!

The government, all governments, simply go around this fact and enunciate their plans (i.e. borrow and spend) because of issues of "national security" or "social wellbeing" or "progress" or "economic development" (yes, they actually do use this one) and so on. It does not matter which excuse they use, they can't get away from the fact that, for example, if people would have want to go to the moon there would have been investors crawling from under rocks and throwing money at space exploration companies. Yet, this did not happen and does not happen in real life and do you know why? Because people have other priorities!

This is nothing but basic Austrian Economics For Dummies - Scale of Values. Yes, that's right. It may seem strange but when all political nonsense is said and done there comes Austrian Economics and provides a simple and true explanation.

But enough with generalities! What about Jordan?

Look, again, this is simple.

All that Jordan needs to do is basically… well… nothing! Do you really think that if Jordanians are paying 5 times (yes, times) the "normal" cost of diesel there wouldn't be a company willing to make tons of profits utilizing other forms of energy? Of course there would be! Tons of companies! And so, why is it not happening? Well… allow us to give you a short picture. Would you invest tens or even hundreds of millions in a country where:

  • You have a king telling you what to do
  • Inflation oscillated between + 30% and - 8% per year during the last 35 or so years
  • The GDP growth was about +350% in the 70's, -30% in the 80's and +35% in the 90's and it is now in the order of 3%?
  • The unemployment is at about 12.5% (officially) and about 25% un-officially
  • The debt is in the order of +80% of GDP
  • The country has been involved in at least 8 wars or massive "interventions" in the last 65 years
  • The country is a net exporter of high skilled labourers (i.e. brain drain)
  • The country is located in the Middle East

Of course, if you would to hear the official propaganda, Jordan is:

  • One of the most liberal countries in the Middle East
  • Considered of "high human development"
  • One of the top 10 countries worldwide in security
  • Where people are "thriving"

And so on.

However as a businessman, would you believe the political propaganda or would you look at the numbers?

We too.

But this is not it.

Take a look at the origin of all of this. Where does it come from? Who controls the money supply? Who creates wars? Who messes with interest rates? Who borrows and spends? Who? Who? Who?

The government of course!

Basically, companies do not want to invest in Jordan in the amount they would normally be willing to do because Jordan is unstable. Yes, companies look at their ROI (Return On Investment) but first they look at the other ROI (Return Of The Investment). No company, no entrepreneur in their right mind would invest in a place where they cannot be reasonably sure that their investment won't go up in smoke because of economic or actual wars.

And don't be naïve. You would do the same. You actually do the same. Think about it. What do you do with your money? Where do you save it? Do you invest it in the Middle East? Do you put it in Jordanian mutual funds? Of course not! And there you have it! And the truth shall set you free!

The so-called Jordanian economic reform is a joke. Sure, a better managed and shiny economic joke than in most Middel East places, but a joke nevertheless. Jordanian apparatchiks are better, have better propaganda and yes, they are less stupid that their counterparts in other middle-eastern countries. They rely more on free markets and thus they have a better economy. However, don't mislead yourself. Their economy is still a heavily managed and heavily subsidized economy.

We have said this many times and we will continue to say it. For as long as you have money to burn, you can sustain any theory, any point of view, any position no matter how ridiculous it gets. Jordan is not an exception and the fact that this year's budget is such that debt is going to rise by 9% (yes, the entire Jordanian debt) in one year alone tells quite a story.

Basically, Jordanians are screwed. Sure, they may "enjoy" this year and the next and the next one. But eventually there will be no more joy. All the money will be spent and there will be nothing left. Game over. Only the Economic Cycle of Hell will prevail. From boom to bust and to boom again. Game over many times over, such is the miraculous Jordanian macroeconomic and energetic reform. If you live in Jordan, enjoy now while you can because tomorrow will suck!

But perhaps you are hopeful. But perhaps you believe in a miracle. And perhaps the near future will agree with you. Fair enough. Just one warning. Do as most intelligent Jordanians do: get out while the going is good. No, this is not a metaphor. It is a lesson that many Argentinians learned in the 60's. You can do yourself a favour and ask them yourself. You won't regret it.

Note: please see the Glossary if you are unfamiliar with certain words.

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