King Abdullah faces a growing challenge from protests against economic hardship and political stagnation, but Jordan's defining faultline between its "East Bank" and Palestinian citizens could pose a graver threat. Trying to prevent contagion from uprisings sweeping the Arab world, Abdullah has tried to implement long-promised political reform, despite resistance from a security apparatus and bloated bureaucracy whose salaries eat up most of Jordan's $8.98-billion budget. The most far-reaching has been a package of constitutional amendments proposed last month to empower parliament and pave the way for the prime minister to emerge from a parliamentary majority instead of being picked by the king. To head off civil unrest, authorities expanded subsidies to the tune of $1.4 billion and channelled tens of millions of dollars to develop provincial areas and offer more handouts to East Bank citizens used to preferential treatment in state jobs. The moves took some of the steam out of protests which broke out across the resource-poor kingdom since January, but did not address underlying tensions between indigenous East Bankers and Jordanians of Palestinian origin. FURTHER POLARISATION Analysts say that a government that is seen as serving East Bankers will further alienate the country's majority population of Palestinian origin. Official discrimination has increased against Palestinians who dominate business but are sharply under-represented in politics. Electoral laws ensure that urban centres where most of them live return far fewer parliamentarians per voter than rural tribal areas. East Bank Jordanian tribes, who form the bedrock of support for Abdullah's Hashemite monarchy, felt threatened by falling state benefits brought about by the global financial crisis and economic reforms of previous governments, as well as any prospect for political empowerment of Palestinian Jordanians. What to watch: -- Retreat from privatisation, additional funding to East Bank Jordanians. PROTESTS Protests have broken out in East Bank tribal strongholds as well as around Amman, where Palestinians -- and Islamists, who form the most popular political force -- are concentrated. But although all demonstrators have been chanting for reform, East Bank protests are motivated largely by concerns over state jobs and benefits, while demonstrations in Amman are fuelled by a sense of injustice in Jordan's electoral laws. Divisions between the two camps were highlighted in a February statement by 36 tribal figures, ostensibly calling for political reform in Jordan, which sharply criticised the monarch's Palestinian-born wife, Queen Rania. Even before the wave of protests inspired by the uprisings in Tunisia and Egypt, Jordan witnessed an escalation of violence in provincial regions that are strongholds of East Bank tribes, fuelled partly by competition for the dwindling number of jobs provided by the state and perceptions of corruption. What to watch: -- The pro-reform opposition becoming more emboldened in their political demands especially if a popular uprising in neighbouring Syria brings more democratic freedoms. Wider violence in Syria on the other hand could bring security concerns for the tightly policed kingdom. -- Growing anger by a mix of liberal and Islamist groups against proposals for a new election law unveiled last June by a government appointed panel they say falls short of addressing political grievances and fails to widen representation. ARAB-ISRAELI PEACE TALKS Jordan hosts the largest number of Palestinian refugees and when the kingdom made peace with Israel in 1994 it got no guarantee of right of return for its Palestinian citizens. Analysts say the issue would come to the fore if the breakdown in Middle East peace talks raises the prospect of a permanent settlement of Jordanians of Palestinian origin. What to watch: -- Aggressive or defiant comments by ultra-nationalist Jordanians that further polarise the two communities. -- A tougher policy towards Israel if peace talks sour and prospects for a two-state Israel-Palestinian solution dim, leading to fears of an Israeli "transfer policy" that expels West Bank Palestinians to Jordan. RECORD DEFICIT/SLUGGISH ECONOMY To head off the unrest that has swept the Arab world, the government introduced extra social spending packages and subsidies since January ranging from salary hikes for civil servants to a freeze in gasoline price rises and lower taxes on basic commodities. The extra spending has pushed up the projected 2011 budget deficit half a percentage point to 5.5 percent of GDP. Officials hope that Gulf aid, especially from Saudi Arabia, will partially offset lower revenues while the private sector continues to suffer from an business slowdown. But expansion of spending on civil service salaries and pensions, which form 80 percent of the budget, will push debt beyond a legally permissible 60 percent of GDP, analysts say. The monarch's appointment of an East Bank premier drawn from the ranks of the country's powerful state bureaucracy who favours a bigger state role in the economy has sent negative signals to the vibrant private sector, which the treasury relies on to generate jobs and taxes. It could jeopardise a modest growth target of around 3 percent in 2011, as the economy struggles to recover . What to watch: -- Whether policy makers resort to higher levels of domestic borrowing from banks and abroad to finance growing social needs and the budget deficit. -- More Saudi money that helps cushion the economy and offsets lower aid levels by the United States, the country's biggest donor and other major Western donors unhappy with the slow pace of economic and political liberalisation. -- Whether the government tackles corruption in state-owned enterprises that wastes tens of millions of dollars, or continues to squeeze the private sector.
