© 1996 International Monetary Fund

Cataloging-in-Publication Data

Jordan: strategy for adjustment and growth / edited by Edouard Maciejewski and Ahsan Mansur, with contributions from Patricia Alonso-Gamo… [et al.].—Washington, DC: International Monetary Fund, [1996]

p. cm.—(Occasional Paper, ISSN 0251-6365 ; 136)

ISBN 9781557755582

1. Jordan—Economic policy. 2. Jordan—Social policy. 3. Debts, External—Jordan 4. Jordan—Economic conditions. I. Maciejewski, Edouard. II. Mansur, Ahsan S., 1951-. III. Alonso-Gamo, Patricia. IV. Occasional paper (International Monetary Fund) ; no. 136. HC415.26.J67 1996

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Contents

• Preface

• I Introduction

• II Overview of Macroeconomic Performance and Structural Reforms Since Late 1988

  • Edouard Maciejewski and Ahsan Mansur

  • Structure of the Economy

  • Origins of Economic Difficulties

    • Broad Strategy During the 1970s to Mid-1980s

    • Macroeconomic Outcome: An Overview

    • Structural Weaknesses

  • Adjustment and Structural Reform Efforts, 1989–94

    • Performance During 1989–90

    • Performance Since 1992

      • Macroeconomic Stabilization and Outcome

      • Structural Reforms

• III Macroeconomic Environment and Factors Underlying Growth and Investment

  • Christopher McDermott

  • Economic Developments During 1976–94

    • Boom of the 1970s

    • Economic Slowdown in the Early 1980s

    • Economic Crisis in the Late 1980s

    • Economic Recovery, 1989–94

  • Factors Influencing Long-Term Growth

    • Macroeconomic Stability and Growth

    • Total Factor Productivity Residuals

  • Factors Influencing Investment

    • Methodology and Data

    • Empirical Observations

  • Concluding Observations

• IV Public Debt Dynamics and Fiscal Policy

  • Etienne de Callatay and Ahsan Mansur

  • Historical Background and Buildup of Public Debt

    • Origin of the Problem

    • Debt Accounting Framework

    • Debt Dynamics and Sustainability of the Debt, 1975–88

  • Shift in Fiscal Policy Stance, 1989–94

    • Debt Dynamics and Sustainability of the Debt Ratio

    • Revenue Mobilization

      • Taxes on Foreign Trade

      • Taxes on Domestic Transactions

      • Taxes on Income and Profits

      • Nontax Revenue

    • Expenditure

  • Recent and Forthcoming Structural Reforms in the Fiscal Area

  • Appendix Methodology of Debt Dynamics Accounting Framework

• V Financial Liberalization and Monetary Reforms

  • Jean-Pierre Chauffour

  • Background and Developments

  • Operation of Monetary Policy, 1970–88

    • Monetary Developments

    • Credit Expansion Driven by the Public Sector

    • Use of Monetary Instruments Until the Late 1980s

  • Monetary Policy Under Government Stabilization Programs, 1988–94

    • Use of Monetary Instruments

    • Banking Supervision and Regulatory Measures

  • Development of AFM

  • Ongoing and Prospective Financial Reforms

  • Appendix I Money Demand Function

  • Appendix II Money Multiplier and Reserve Money, 1980–94

  • Appendix III Monetary Program Under Indirect Monetary Control

• VI External Debt Strategy

  • Patricia Alonso-Gamo and Ahsan Mansur

  • Emergence of the External Debt Crisis

  • Debt Management Strategy After the Debt Crisis

    • Paris Club Agreement, 1989

    • Negotiations with Commercial Bank Creditors

  • Changes in Debt Strategy

    • Paris Club Rescheduling Agreements, 1992 and 1994

    • Revised Debt Strategy vis-à-vis Commercial Banks

    • Negotiations with Other Official Creditors

• VII Liberalization of Trade and Exchange Systems

  • Patricia Alonso-Gamo

  • Structure of Trade

  • Trade Regime and Trade Policy Reforms Since Late 1988

    • Trade Regime Prior to the Reforms

    • Policy Changes in the Trade Regime

  • Opening Up the Economy

  • Regional Developments and Future Challenges

  • Developments in the Exchange System

• VIII Social Aspects of the Adjustment Program: Strengthening the Social Safety Net

  • Ahsan Mansur

  • Poverty Profile

    • Poverty and Income Distribution

    • Dimensions and Distribution of Poverty, 1991–92

    • Why Poverty Deteriorated

  • Poverty Alleviation Policies

    • Temporary Social Safety Net Instruments

      • Food Subsidy Schemes

      • National Aid Fund

      • Health Care Subsidies

      • Other Welfare Programs

    • Permanent Social Safety Net Arrangements

      • Public Education System

      • Public Health System

      • Other Safety Net Arrangements

    • Overview of Recent Developments and Medium-Term Strategy

• Boxes

• 5.1. Banking Crisis of 1989–90

• 8.1. Social Security Corporation

• Tables

• 2.1. Social and Demographic Indicators

• 2.2. Selected Economic and Financial Indicators

• 3.1. Macroeconomic Performance

• 3.2. External Financing and Investment

• 3.3. Summary of Estimated Panel Regression Coefficients from a Growth Accounting Framework

• 3.4. Impact of Macroeconomic Policy on Real GDP Growth

• 3.5. Contributions to Economic Growth by Factors of Production

• 3.6. Estimates of Private Investment Equation, 1977–94

• 4.1. Central Government Operations

• 4.2. Fiscal Sustainability

• 4.3. Fiscal Impulse

• 5.1. Comparative Performance of Emerging Capital Markets, 1994

• 7.1. Direction of Foreign Trade

• 8.1. Selected Poverty Indicators

• 8.2. Factors Contributing to Change in Poverty

• 8.3. Food Subsidies

• 8.4. Selected Countries: Expenditure on Education

• 8.5. Health Indicators, 1991

• Al. Sensitivity of the Monetary Program to Selected Parameters

• Charts

• 2.1. Structure of the Economy

• 2.2. Movement in Monetary Aggregates, Prices, and the Exchange Rate

• 2.3. Central Government Operations

• 2.4. Central Government Deficit, Revenue, and Expenditure

• 2.5. External Sector

• 2.6. Exchange Rate Indices

• 2.7. External Debt and Debt Service

• 3.1. Real GDP Growth and Investment

• 3.2. Real GDP Growth, Fiscal Balance, and the Current Account

• 4.1. Fiscal Balance

• 4.2. Expenditure

• 4.3. Tax Revenue

• 4.4. Nonmilitary Current Expenditure

• 4.5. Debt-to-GDP Ratio

• 4.6. Evolution of Debt-to-GDP Ratio

• 4.7. Fiscal Impulse Breakdown

• 4.8. Implicit Interest Rate and Economic Growth Rate

• 4.9. Revenue and Grants

• 5.1. Monetary Aggregates

• 5.2. Prices and Interest Rates

• A1. Broad Money Demand

• A2. Income Velocity of Money

• A3. Quarterly Demand for Money

• A4. Currency Outside Banks

• A5. Banks’ Cash in Vaults and Reserve Requirements

• A6. Excess Liquidity and Money Multiplier

• Figures

• 5.1. Banking System

Preface

The papers presented in this study were prepared by staff members who have participated in cooperative exchanges between Jordan and the IMF over the past three years. The authors acknowledge the excellent research assistance provided by Use-Marie Fayad and secretarial support by Irene Carpenter, Susan Jones, and Mary Ann Miles. The authors are also grateful to Elisa Diehl of the External Relations Department, who edited the paper for publication and coordinated production.

The views expressed here, as well as any errors, are the sole responsibility of the authors and do not necessarily reflect the opinion of the Government of Jordan, the Executive Directors of the IMF, or other members of the IMF staff.

The study was completed in August 1995 and is based on information available at that time.