Yemenis are worried about the implications of radical economic reform, reports Peter Willems from Sanaa Many people celebrated when the Yemeni government introduced an economic reform package in 2002. The Ministry of Planning and International Cooperation, under the guidance of the World Bank, put together the Poverty Reduction Strategy Paper (PRSP) to boost Yemen's failing economy and upgrade many sectors such as education, health and infrastructure. But two years later, implementation of the plan has stalled. "The government of Yemen has not acted on the reform measures recommended by the World Bank in the last year-and-a- half to two years," said Robert Hindle, country manager of the World Bank, based in Yemen. "They haven't been rejected, but the government hasn't acted on them either." Since economic reform programmes started in the mid-1990s, the government has managed to take fundamental steps towards stabilising the economy; it has been able to reduce its debt and stabilise its currency. In 2003, foreign reserves surpassed $5 billion for the first time, and last January Capital Intelligence, an international emerging markets rating agency, raised Yemen's long-term foreign currency rating. "The government has achieved many things since economic reform started in 1995," said Ahmed Ghaleb, deputy minister at the Ministry of Finance. "It has stabilised the economy, which means that the foundations for economic growth have been put in place." But economic conditions today are far from pretty. Economic growth is not keeping up with the population growth rate, which is estimated to be as high as 3.6 per cent annually while GDP growth fell below 3.6 per cent last year and may not exceed 3.3 per cent in 2004. Forty-two per cent of Yemenis live below the poverty line, and even though various figures on unemployment exist, some estimate that between 25 per cent and 30 per cent of the Yemeni population is out of work. According to a recent Arab League survey, Yemen remains the poorest country in the Middle East with an average annual per capita income of $508. "We are recommending that the government gets back on the reform path across the board," said Hindle. "It's the only way to improve the lives of people in Yemen," he added. One explanation for the government balking at pushing through reform is that it has had to focus most of its energy on national security and on the war on terror. "From the beginning of the implementation of the PRSP, the government has tried very hard to focus on main areas of concern, which are health and education," said Minister of Planning and International Cooperation and Deputy Prime Minister Ahmed Sofan. "The cuts that were made and redirected towards security came from other areas which were second priorities. First we have to sustain our security level because there is no development or peace without security. If we measure priorities on action plans of the government, security comes first." Even though the World Bank argues that the strength of oil revenue coming from high oil prices should encourage the government to implement key reforms, others say that the luxury of better oil royalties afforded the government more time to re- evaluate the situation before taking action. "World oil prices and oil revenue in Yemen have been favourable," said Yahya Al-Mutawakel, advisor at the Ministry of Planning and International Cooperation. "This could be used in two ways: to speed up economic reform or to take time to implement steps more wisely." Another argument as to why the government has hesitated is that major changes would adversely affect political groups and influential people with vested interests. "[These groups] are trying to look after their own interests and are stipulating their own conditions before anything happens," said Ali Abdul-Rahman Al-Bahr, former minister of oil and chairman of Housing Credit Bank in Yemen. According to Al-Mutawakel, subsidies on diesel fuel is a good example. Up to $600 million a year in subsidies has kept the price of diesel 75 per cent lower than prices in neighbouring countries. "Lifting the subsidies on diesel fuel is a major element of the reform plan because it has [constituted] a misuse of funds," said Al-Mutawakel. If the money were redirected to more useful purposes, those profiting from smuggling fuel across the borders would be hurt. Another factor preventing reform is that the Yemeni public fears the possible results of a major economic overhaul. "Fear of the public feeds the fear of decision makers," said Al- Mutawakel. "It's a cycle. The decision makers have to take into consideration repercussions following economic reform measures." Inflation rose more than 13 per cent last year, according to Hindle a result of the government relaxing its fiscal policy, price changes on the international market and currency fluctuations. But many Yemenis have chosen economic reform as the culprit, blaming the World Bank for the fact that low-income sectors of the population can ill afford staple commodities. As one vendor in Sanaa put it, "The World Bank is here to destroy our country and culture. Prices going up is just one part of the big scheme of the World Bank to drag us down so that we live like dogs." According to Ghaleb, the plan for economic reform is unpopular because it is misunderstood. "The public does not understand economic reform completely," said Ghaleb. "The media has sometimes passed on wrong information and those with vested interests may have been able to mobilise the public against reform." There is also concern that if reform is unpopular, only partial plans may be implemented, leaving the economy struggling. Part of the reform, for example, involves allowing the government to pass more responsibility on to the private sector. More local and foreign investment would help boost economic growth and generate jobs. According to Al-Mutawakel, the government has been successful in improving the business environment in Yemen by increasing security, but what is needed is an improvement in financial security, which would require adequate changes to the judicial system. "Without an independent judicial system running properly, we may never see the investments needed to create a thriving economy," commented a chairman of a local bank. Progress has been made towards judicial reform, but there is more to be done. The bottom line is that no matter what is causing the government to stall its plans to implement economic reform, the longer it takes, the more the economic conditions will deteriorate. "Now is the best time," says Hindle. "The government has a wonderful opportunity to restart economic reform. If the government acts now, it will be able to improve the lives of the Yemeni people. But the longer it waits, the more difficult it will become."
