Obama’s Proposal To Reform Mideast Economies – Analysis


By Christian Caryl for RFE/RL

U.S. President Barack Obama has given his long-awaited speech outlining his administration’s response to the extraordinary wave of political change sweeping through the Middle East. He talked about promoting the growth of democratic institutions and pushing ahead with peace talks between Israelis and Palestinians.

Yet some of the most noteworthy passages in the speech were devoted to economics, not politics.

Middle East
Middle East

Obama, aware that economic discontent was a major motive behind the demonstrations that toppled Egyptian President Hosni Mubarak and his Tunisian counterpart, Zine El Abidine Ben Ali, described a program of U.S. assistance aimed at reinforcing democratic changes by fostering broad-based prosperity.

“Our message is simple: If you take the risks that reform entails, you will have the full support of the United States,” Obama said.

Focusing on Egypt and Tunisia, Obama promised billions of dollars’ worth of debt relief and loan guarantees, and offered a wide-ranging program of economic expertise designed to break down structural barriers that prevent the peoples of the region from unleashing their entrepreneurial potential.

If some of these ideas sound familiar, that is no accident. Before the speech, senior administration officials drew comparisons between the measures to be announced and the post-World War II Marshall Plan, when the United States channeled vast resources to the governments of Europe in order to stimulate the rebuilding of the continent. In his speech, Obama invoked the example of Eastern and Central Europe in the years after the fall of the Berlin Wall, when Washington worked with its allies and multilateral institutions to promote market-oriented reforms in countries moving away from the communist system.

‘Marshaling Plan’

Yet analysts caution that such analogies have to be taken with a grain of salt. Brian Katulis, a Middle East expert at the Center for American Progress, a liberal think tank in Washington, says that Obama’s ambitions for the region may be tempered by the reality that America’s power and influence in the Middle East are no longer quite what they used to be.

“After World War II, the United States economy was growing and we could afford to have large amounts of U.S.-taxpayer direct assistance go to countries to help Europe and Japan rebuild themselves. That’s not the case now,” Katulis says. “So I think there’s a political challenge the president has in announcing debt relief for a country like Egypt at the same time that his administration is negotiating with the Republicans in Congress over our own debt problems.”

Katulis notes that the $1 billion in loan guarantees and $1 billion in debt relief offered to Egypt by Obama in his speech is dwarfed by the $20 billion in assistance recently promised by the Kingdom of Saudi Arabia to the much smaller countries of Bahrain and Oman — and that the Saudi agenda is almost certain to bear little resemblance to the democracy-promotion ideals of the United States.

Viewed in this sobering light, says Katulis half-jokingly, it might be more accurate if Obama were to speak of a “marshaling plan” — a policy in which the U.S. marshals the efforts and resources of its friends and allies toward common ends. Katulis says that this should probably come as little surprise, given the scale of the challenge and the fact that this sort of robust multilateralism has been a hallmark of Obama administration foreign policy from the beginning.

“Given the economic crisis that’s hitting Egypt right now, it’s going to take more than just U.S. bilateral assistance to respond to those concerns,” Katulis says.

Extolling Patience

Indeed, the chronic weakness of the region’s economies means that even the most grandiose plans will need years to have notable effects. Obama mentioned one particularly daunting statistic in his speech: Excluding trade in oil, the entire Middle East and North Africa region, with its population of 400 million, exports the same amount each year as Switzerland, with a population of just 8 million.

Economist Anders Aslund says that this makes the challenges facing Obama in today’s Middle East entirely comparable in scale to those that confronted previous presidents in Central and Eastern Europe in the late 1980s and early 1990s. Aslund, now at Washington’s Peterson Institute for International Economics, served as a leading economic adviser to the governments of Russia and Ukraine in the 1990s.

Obama has learned from the experience of post-1989 Eastern Europe, says Aslund, noting that the president’s speech included references to a broad program of debt relief and concerted action by the International Monetary Fund (IMF) and the World Bank — approaches also put to use in the new European democracies, in varying degrees, two decades ago.

The speech even proposed expanding the European Bank for Reconstruction and Development (EBRD) — which was originally created to support entrepreneurship in the postcommunist countries — to carry out the task of helping business development in the countries of the Arab Spring.

EBRD Chief Economist Erik Berglof tells RFE/RL that the bank’s role in fostering the transition from command economies to market economics in Central and Eastern Europe since the early 1990s is certainly relevant to the role the EBRD would play in countries like Egypt or Tunisia.

“There are many transition challenges in these countries,” Berglof says. “It’s about developing a healthy private sector, developing small and medium-sized enterprises. It’s about redefining the role of the state in the economy. So there are many things they have in common, though, of course, [they have] specific challenges that are different. But we think that there is enough in common for us to play a useful role there.”

Lessons From The Past

Aslund, for his part, says he hopes that Obama has learned from the mistakes committed in the course of the East European reforms.

One of the most important lessons of the early postcommunist periods, Aslund says, is not to rush into the privatization of state-owned assets too quickly. Reformers should start with deregulation, aiming specifically at creating healthy conditions for the growth of small businesses, before moving on to privatization. The positive example, Aslund says, is Poland, which implemented sweeping reforms that enable the creation of a vibrant small-business sector. Otherwise, he said, the result will be much like what happened in Russia, where well-connected elites managed to use the uncertainties of the transition to grab valuable assets away from the state.

What’s more, Aslund says, Western governments and international financial institutions should be quick to provide ample financial assistance up front, as they did in the case of Poland, rather than hesitating until the reform process has been hijacked by elites, as happened in Russia and Ukraine:

“What is the difference between Poland and Russia?” Aslund says. “It is that the West helped Poland immediately and the West did not help Russia. Therefore the reformers could carry out their program while in Russia they were blocked because they did not have the outside support.”

A similar danger looms, he says, in Egypt, where the all-powerful military has capitalized on the wide-ranging privatization process conducted by Mubarak over the past few years — while would-be small business owners find that their opportunities are choked off by red tape and corruption.

Katulis also worries about corruption, which, he says, could easily undermine even the most ambitious economic reform plans for the region. Obama’s best intentions will be all for naught if he can’t find a way to prevent the reform process from being tarred by corruption.

“I think the first thing we can do is make sure that our own practices don’t feed that corruption,” Katulis says. “And when you look at how we operated in Iraq or how we continue to operate in Afghanistan, that’s not the case. We haven’t done a stellar job in making sure that our own money is not wasted and also not delivered in ways that lead to corrupt practices.”

Ron Synovitz in Prague contributed to this report


RFE/RL journalists report the news in 21 countries where a free press is banned by the government or not fully established.

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