Dirty Secret of Arab Spring: Hooked on Foreign Aid

Israel has stood aloof from the chaos around it. That can't continue.

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It's been three years since the Arab Spring claimed its first dictator – Tunisia's Zine El Abidine Ben Ali – and the chaos shows no sign of abating.

The death toll in Syria's civil war is now well into the six figures. Egypt's experiment in democracy first yielded a government of Muslim fundamentalists and then a return to military rule. Tunisia has been trapped in endless infighting between Islamists and secularists. Libya has become a patchwork of clashing militias and Yemen is a battleground between an enfeebled government and militants.

In a way, it is the kind of "people power" the Arab Spring's cheerleaders were celebrating in its earliest days, albeit a perverse one. There's no strongman in Egypt stage-managing its transition from police state back to police state -- the Egyptian masses did it all themselves. At least half the carnage in Syria is due to the popular resistance against Bashar Assad, who still enjoys the backing of a good part of the population for his part of the killing. In Libya, no one is running the country at all -- the source of the country's corruption and killing is the Libyan street. Tunisia's violence comes principally from grassroots militant groups, not from the police or army.

The real problem: Bread and butter

The great majority of the anxiety felt by Israel and the world about the Arab Spring has been over the political instability and the rise of Islamists. But the deeper problem of the region is economics.

Even in Egypt and Tunisia, where Islamists are in retreat, and in places like Jordan and Lebanon, where the government has held on to power, the economics of the Arab Spring are nothing short of dismal. In fact, they are bad enough to threaten the stability of the region even if some semblance of political order is restored.

The International Monetary Fund's top-line forecasts for growth in the so-called transition economies of the Arab Spring – Egypt, Jordan, Morocco, Tunisia and Yemen – fail to capture the extent of the distress. (For that matter, the IMF term "transition" to describe what most people would call "going to the dogs" also doesn't capture what is happening either.)

The IMF projections actually foresee a small pick-up in economic growth this year to 3.2%. That hardly makes the Arab Spring countries tiger economies, nor do the figures include Syria and Libya. Those two countries are too chaotic to provide any basis for an estimate and if they were included, would probably trim to growth rate to zero if not into minus.

Nevertheless, it's an improvement over 2013's forecasted 2.9% growth rate and is more than you might expect given the political gyrations all these countries are suffering.

Foreign aid as face powder

But here is the secret: Most of that growth is being pumped up by foreign aid.

Egypt, whose economy is projected to grow 2.8% this year, has been promised $12 billion of assistance from Saudi Arabia, Kuwait and the United Arab Emirates as a reward to the army for removing the Muslim Brotherhood from power. In fact, the Egyptian economy is a mess, with inflation in the double digits, its budget deficit at 13.2% of GDP and foreign currency reserves at less than half their level in 2011. The key tourism industry is in the doldrums. But since it toppled Mohammed Morsi last summer, the military government has had the resources to undertake $8.5 billion in stimulus programs.

In Jordan, which the IMF says can look forward to GDP expanding 3.5% this year, the money is coming from the United States, the IMF and the Saudis. That makes up for the fact that the kingdom has been overrun by refugees, suffered from an unreliable supply of energy from Egypt and the loss of Syria as a trade partner and transportation corridor.

The aid money is the economic equivalent of taking an aspirin for a brain tumor: It relieves the pain but offers nothing in the way of a cure.

No oil and no jobs

Even before the Arab Spring wreaked havoc, the economies of the Middle East weren't growing fast enough to create jobs or increase the meager standards of living for the region's economies not blessed with oil. Political oppression and corruption certainly factored into the outburst of revolutions that occurred in the Arab world three years ago, but as China and Saudi Arabia demonstrate, prosperity has a way of making the absence of freedom a little less painful.

Had the despots of Tunisia, Egypt and Syria done better at delivering prosperity, they might still be sleeping peacefully in their presidential palaces.

The Arab Spring hasn't become a catalyst for economic reform or change, except to the extent that desperate governments have acted to cut back energy subsidies. Instead it has become a forum for debates over the role of Islam and the relative value of stable, dictatorial rule versus the anarchy created by freedom.

Across the region, the policies that allocate more money to subsidizing energy and food than to education are still in place. Despite the high-profile arrests of regime cronies, there's no evidence that corruption has declined. The heavy-handed bureaucracies and business-hostile regulations remain intact as do the barriers to foreign trade. The Arab Spring's big economic step backwards means that the countries that are geographically closest to us are going to be in a state of distress for some time to come.

The Gulf kingdoms aren't reliable sources of foreign aid. They won't inject endless amounts of cash into Egypt and Jordan (just ask the Palestinians).

Even if Cairo's rulers do opt for reform, the effects will take time and in the short run they will inflict pain on ordinary Egyptians. Economic woes will only complicate, if not thwart, the military's efforts to stabilize the country politically.

In Syria, the extent of the damage to the country's infrastructure and economy is so huge that even if the fighting ends, recovery will take years.

Jordan and Lebanon, meanwhile, are reeling under the pressure of refugees streaming in from Syria. The United Nations estimates that the refugees in Jordan now equal 8% of the population, eating up resources and competing for scarce jobs. In Lebanon, the Syrian refugees are equal to a fifth of the population and straining a government budget that will likely show a deficit equal to 11% of GDP this year. Both countries have held up well under the pressures created by the turmoil in Syria, but those pressures are still mounting and time is working against them.

Has does this affect Israel economically?

After three years of a rocking and rolling Middle East, we've grown seemingly indifferent to the troubles around us. The Arab Spring hasn’t factored into the level of foreign investment or business confidence. Apart from losing the valuable supply of Egyptian natural gas, it could all be happening on Mars.

But Israel is by no means immune.

The stock market scare last August when the U.S. threatened to attack on Syria exposed our vulnerability. The instability in Sinai and in Syria is already leaking over our borders, and that could turn into a flood if it spreads to Lebanon and Jordan. It might even spur the U.S. back into the region, which only the most dewy-eyed optimist would expect to help matters. The short, low-pain conflicts like the ones we've fought with Hamas and Hezbollah, when the economic impact was virtually nil, may be superseded by an era of endless, debilitating fighting.

The people have the power now, which hasn't translated into better management: A protest in Jordan (illustration).Credit: AP

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