on the jordanian economy - GLORIA Center

THE 1991 GULF WAR AND JORDAN'S ECONOMYBy Ziad Swaidan and Mihai NicaThis article examines the 1990-1991 Kuwait crisis's damaging effect on Jordan's economy. Trade withIraq was an important aspect of Jordan's economy and transshipment from Jordan's port of Aqaba toIraq had been especially profitable for Amman. This enterprise was stopped by the war and then by thesanctions on Iraq. Other key elements for Jordan, such as Iraq's sale of reduced-price oil, financial aidfrom Saudi Arabia and Kuwait, remittances from expatriate Jordanians working in the Gulf, and tosome extent international tourism all came to an abrupt after the Iraqi invasion of Kuwait.Early in the morning on August 2, 1990,more than 100,000 Iraqi troops crossed theborder and invaded Kuwait. Few peopleexpected that their relations would reach thisbloody end. The Gulf War divided the Arabworld into two camps, with a small groupsupporting Iraq (Jordan, PLO, Sudan, andYemen), and the rest supporting Kuwait. Manycountries would feel the consequences of theinvasion, but few are still as deeply affected asJordan has been by that conflict's economic andpolitical fall-out.Even though Jordan is not, of course, itself aGulf state, its interests are very muchinfluenced by events there. Lacking oil andvaluable natural resources itself, trade and aidinvolving Gulf states are vital for Jordan'seconomy. As part of the Arab world andMiddle East, Jordan also has a special interestin events in that sub-region. Eight percent of itsarea is desert and another portion aridmountains that contains no oil. Among itspopulation of 4.9 million people, almost 40percent of them under 15 years of age, Jordanrequires an inflow of capital to provide jobs andservices.(1)During the 1980s, a very significant part ofits income depended on billions of dollars inremittances from Jordanian expatriates andhundreds of millions of dollars in financial aidgranted by some of the Gulf countries (Bahrain,Kuwait, Qatar, Oman, Saudi Arabia and theUnited Arab Emirates). Jordan also exportedagricultural and industrial products to the Gulfstates and Iraq. In addition, Jordanian truckstransported agricultural and industrial productsall over the Middle East and beyond.As a result of the 1991 Gulf war, Jordan,Iraq's main economic partner, found itself in acrisis that it did not create. In an attempt tosave Jordan from its precarious position, KingHussein proposed the Arab League mediate thedispute between Iraq and Kuwait. Although theattempt failed, King Hussein was seen by someas the best hope for a peaceful solution.(2)After the mediation attempt failed and theconflict escalated, Jordan became affected byall of the social, military, political, andeconomical consequences. Jordan’s positionwas especially complicated by the tradesanctions imposed on Iraq by the UN thatresulted in a siege of Aqaba, Jordan's Red Seaport. The massive inflow of returningJordanians and, temporarily, by the arrival ofmany foreign refugees on the way back to theirhome countries contributed to the economiccrisis.Aside from their common characteristics asArab and Muslim neighbors, there was a specialhistorical bond between Jordan and Iraq. Whenthey emerged from the Ottoman Empire afterWorld War One, both countries were ruled bymembers of the Hashemite family. Abdallahbecame king of Jordan and his brother Faisal70 Middle East Review of International Affairs, Vol. 6, No. 2 (June 2002)

The Triumph of the Old Middle Eastbecame king of Iraq. In Iraq, a 1958 militarycoup overthrew that regime and created arepublic. Still, relations eventually recovered.During the 1980-1988 Iran-Iraq war, Jordanand its people genuinely supported Iraq both asa fellow Arab state and as a protector againstIran's brand of radical Islamism, giving therelationship an increasingly important strategicdimension. When Jordan faced a deepeconomic crisis in 1989, its Gulf friends refusedto help, further increasing Baghdad's relativeimportance for Amman..The economic aspect of relations was quitecritical in all these years. During the war withIran, Jordan's economy--includingtransportation, trade, agriculture, and industry--all became essential for Iraq. In exchange, Iraqsupplied Jordan with cheap oil, grants, and lowinterestloans. Today, Iraq remains the majorsupplier of discounted oil and Iraqi continues tobe the largest market for Jordanian products.Delivering these goods in both directions hasbecome one of the main pillars of Jordan'stransportation sector.Jordan's economy faced many problemsbefore the Gulf War. There was a highunemployment rate of 20 percent. The foreigndebt, exceeding $11 billion, was triple theannual Gross Domestic Product (GDP). Andthe level of financial transfers from Jordaniansworking in the Gulf was declining.(3). As aresult, Jordan had to devalue its currency by 50percent in 1989. Another factor was Jordan’ssensitivity to trade levels and its dependence oninternational commerce. For instance, exportswere worth almost $1 billion in 1989, with afurther $181 million in goods being re-exportedthrough Jordan. Considering that Jordan’s GDPwas a mere $4.3 billion, this is a staggeringfigure. No less important to Jordanian livingstandards, the country imported $2.16 billionworth of goods in that same year.(4)Before the Gulf war, well over half ofJordan’s exports were sent to Gulf states. Iraqalone was the market for 23 percent of itsexports; Saudi Arabia was generally the marketfor at least 10 percent more. Iraq’s importancewas underlined by the fact that it was the sourceof between 10 and 17 percent of total Jordanianimports by the late 1980s.(5)Largely as a reaction to the problems ofdeficit and debt described above, theInternational Monetary Fund (IMF) pushedJordan to apply a tough economic reformprogram to increase production, decreaseimports, reduce government spending, and stopgovernment subsidies. These steps led tomassive riots in April 1989 starting in Ma'an,capital of Jordan's transport sector, and sweptthroughout the country, forcing King Husseinto change the government and keep subsidiesfor most basic products. By 1990, Jordan'seconomy had begun recovering from the 1989crisis but still needed serious domestic effort,international support, and time to reach betterlevels of performance.(6)THE IMPACT OF THE GULF WARImmediately after the Iraqi invasion ofKuwait, the UN Security Council passedResolution 661 which invoked economic tradesanctions against Iraq, a decision with whichJordan complied. UN sanctions deeply affectedJordan’s interests and economy since, as statedabove, Iraq was the largest Jordanian tradepartner for the previous ten years.Many Jordanian companies lost largeamounts because Iraqi companies were unableto repay their debts due to the sanctions.Moreover, key Jordanian economic sectors suchas transportation, agriculture, and industry,mainly serving Iraq, were severely affected bythe UN resolution. The Amman Chamber ofCommerce announced in November 1990 thatthe trade sanctions had already cost Jordan $2billion, and the loss was growing. According tothe same source, they expected it to reach $3.6billion in 1991.(7) In addition, before theresolution Iraq was supplying 80 percent ofJordanian oil at reduced prices.(8) Thesanctions forced Jordan to import oil from theinternational markets at the going rates.Iraq was highly dependent on Jordan as theroute for importing and exporting neededproducts. Each year, millions of tons of goodswere handled for Iraq in the Jordanian port ofMiddle East Review of International Affairs, Vol. 6, No. 2 (June 2002) 71

Barry RubinAqaba and this aspect of Jordan’s economy hadbeen growing rapidly before the sanctions tookeffect. Imports via the port went from 6.2million tons in 1989 to 3.2 million in 1990 to1.5 million in 1991. Exports also were hurt, ifless dramatically; from 10 million tons in 1989to 8.9 million in 1990 to 7.7 million in 1991.(9)The trade sanctions also caused thecancellation of many shipping visits, and as adirect result, the number of ships arriving atAqaba decreased from 2,583 in 1988 to 2,075in 1991. This, in turn, made it harder and longerfor Jordan to receive products it needed forlocal industry and agriculture, in addition todisrupting Jordanian exports. Allied warshipssearched thousands of vessels each year andturned back many shipments belonging toJordanian merchants who had business relationswith Iraq, even if they were targeted for localconsumption. Jordanian phosphate andpotassium exports were also disrupted sincethey depended on Aqaba’s port.(10)The Gulf War affected (in various ways)forty countries around the world.(11) Somecountries lost their exports to the Gulf area.Others lost the remittances of their expatriates.A few had to accommodate thousands of theircitizens who returned from the Gulf area. Mostcountries were affected as a result of theinterest rate increase on their old debts anddifficulty to get new credits. Many wereaffected by the increase in oil prices. Jordan,however, was severely affected by all of theseissues.Crown Prince Hassan announced that theeffects of Gulf War on Jordan could besummarized in three dimensions: the tradesanctions against Iraq, the refugees who fled theGulf area and passed through Jordan, and theJordanian expatriates who returned toJordan.(12) At the time of the crisis, estimateson what losses would occur due to the conflictvaried, but in Jordan, they were believed to bemassive. Mudhar Badran, Jordan’s PrimeMinister at the time, estimated Jordan’s totalloss at $8 billion, Badran added that whileJordan’s exports to other Arab countries were$485.7 million in 1989 and had increased by$42.8 million in the first half of 1990, they hadsince decreased gradually after August 2, 1990reaching zero at the end of 1990 and the first 3months of 1991.(13)The Jordanian daily al-Dustur reported thatJordan’s loss would reach $1.4 billion in thelast five months of 1990, and would reach $8.4billion in 1991, including both direct andindirect losses.(14) According to anotherJordanian daily, Sawt al-Sha’b, the UN hadestimated that Jordan lost $1.52 billion in 1990,and expected it to lose another $3.4 billion in1991 (15). Sawt al-Sha'b’s Sameh Hanandehreported in November 1991 that Jordan had lost$1.68 billion in 1990 and would lose $3.97billion in 1991.(16)Regardless of how much these figures(especially Badran’s) were an attempt to getmore foreign aid, the real impact was vast anddid cause Jordan’s leadership to worryenormously about the future of its economy.Jordan’s GNP declined by more than 8 percent,and Jordan's general economic growth droppedespecially in the first five months after thewar.(17) Jordanian reserves of foreigncurrencies and government revenues declinedleading to an estimated budget deficit of $308million in 1991, excluding interest payments.The crisis affected almost all productionsectors, led to an increase in the unemploymentrate to nearly 30 percent, and also resulted in anincrease of the poverty rate to 33 percent.Moreover, Jordan had to postpone theapplication of the IMF reform program. Writingin al-Dustur, Odeh Suleiman al-Swaisconcluded that, after the Iraqi and Kuwaitieconomies, Jordan’s economy suffered the mostdue to the Kuwait crisis.(18)Indeed, when compared to other countries,the serious effect on Jordan becomes evenclearer. During the eight months after the GulfWar, Jordan lost an estimated $4 billion whileTurkey, India and Yemen combined lost $5.5billion. Turkey estimated its losses to be $3billion, Yemen announced a loss of $830million, and India estimated its loss to about$1.6 billion. Even Egypt's actual loss didn'texceed $1 billion dollars. In addition, while72Middle East Review of International Affairs, Vol. 6, No. 2 (June 2002)

The Triumph of the Old Middle Eastthose countries’ losses were less than Jordan’s,they received more and better credits. Jordanobtained only $1 billion dollars from Japan andthe European Union.(19)Furthermore, before the crisis Arab andInternational financial support was vital forJordan's economy. Before the Gulf War Jordanwas receiving almost $600 million a year fromthe wealthy Gulf States alone. As a result ofthe Jordanian support of Iraq during the war,those countries cut off their support andEuropean and other countries such as the U.S.and Japan took the same steps (a situation notreversed until Jordan became involved in thepeace process with Israel, most especially afterthe Wye River Agreement). In addition, Iraqand Kuwait themselves had previously been thesource of 30 percent of the total financial aidreceived by Jordan.(20)Jordanian exports to Arab and othercountries also declined. Kuwait and SaudiArabia prohibited the import of Jordanianproducts because of Jordan’s political positionduring the war. Jordanian agriculture, industryand trade sectors were thus shut out of the mostimportant Gulf markets. The transportationsector was paralyzed as a result of the tradesanctions and the decline in exports andimports.(21)Finally, the tourism sector was harshlyaffected by the Gulf War. Having taken nearlya decade to recover from the loss of theimportant tourist sites of Jerusalem andBethlehem in 1967, by 1990, the industry inJordan had reached all-time highs, with almost2.6 million tourists entering in that year alone(most of whom were Arab). Utilizing its siteslike Jerash and Petra to their fullest, tourismhad even outperformed phosphates (Jordan’sleading export) in net receipts. However, by1991, this number dropped by almost 25percent to 2 million visitors.(22)RETURN OF JORDANIANSThere were many groups of people whopassed through or returned to Jordan due to theGulf War. These people can be classified intofive categories: first, Jordanians who carryJordanian passports and have Jordan as theironly home and who consequently returned toJordan. Second, Jordan had to host Palestinianswho carried identification papers issued byother Arab countries that then refused toreceive them. Third, Palestinians from theWest Bank, who had Jordanian passports, wereforced to stay for a long period in Jordan untilIsrael allowed them to go back to the WestBank. Fourth, over 30,000 Iraqi refugees whoescaped Iraq eventually settled in Jordan.Finally, as many as one million refugees duringthe last five of months of 1990, according toPrime Minister Badran.(23)Jordan was one of the largest providers ofwhite-collar employees to the Gulf countries.Jordanians living in the Gulf countries beforethe crisis exceeded one million (20 percent ofJordan's total population) distributed amongBahrain, Iraq, Kuwait, Oman, Qatar, SaudiArabia and United Arab Emirates. TheseJordanians living abroad also became the mainsupplier of foreign currency to Jordan, whichofficial statistics estimated at over $1.2 billionannually in the mid-1980s (unofficial estimatesran as high as $3 billion). Jordanians in Kuwaitand Iraq alone accounted for almost 40 percentof the total Jordanian expatriate transfers, asthese two countries hosted over half a millionJordanians.However, as a result of the war, theseremittances decreased to $460 million (theofficial statistic) in 1991. It was estimated thatJordan had lost $122 million in 1990 and $318million in 1991 due to the decrease in theemployee transfers.(24) In addition, it wasestimated that Jordanian expatriates lost $1.4billion of their deposits in Kuwait and $1.5billion of their belongings. Making mattersworse, after the Gulf War, former Jordaniansworking outside Jordan, previously a source ofnational income, suddenly became a majorburden inside Jordan.Jordanians started to migrate to Kuwait inthe 1950s, and the total number of Jordaniansworking in Kuwait before the Iraqi invasionwas almost 400,000. Jordanian labor helped inbuilding modern Kuwait, with JordanianMiddle East Review of International Affairs, Vol. 6, No. 2 (June 2002) 73

Barry Rubinemployees working in many governmentdepartments such as education, health care,military, as well as in the private sector. TheJordanian media reported that Jordanians weretreated as second-class citizens, even thoughmost of them had lived many years there andmany were even born and raised in Kuwait.Before the Iraqi invasion many articlesrequesting the government to deport Jordaniansappeared in Kuwaiti newspapers, and theslogan "Kuwait is for Kuwaitis" becamewidespread. Jordanians were unable to buyprivate houses or operate their own businessesin Kuwait. Following the liberation, Kuwaitstarted a comprehensive campaign to deportJordanians out of Kuwait and an estimated330,000 Jordanians returned to Jordan after theIraqi troops were expelled from Kuwait by theUS-led UN coalition.(25) Many otherJordanians, under indirect pressure andchanging economic conditions, returned fromother Gulf countries such as Bahrain, Oman,Qatar, Saudi Arabia, and United Arab Emirates.The return of 330,000 Jordanians from theGulf area, in addition to one million refugeeswho passed through Jordan, had many seriousnegative effects on Jordan. Jordanianunemployment rate soared from 20 percent to30 percent.(26) White-collar employees werethe main victims since Jordan was one of themajor exporters of white-collar employees tothe Gulf area. The situation worsened after thereturn of Jordanians from Kuwait and Iraq, asituation which continued until Jordan createdmore jobs and found vacancies abroad for thelarge number of unemployed.Returnees increased the pressure on thelimited natural resources (e.g., water and food)and on the Jordanian public utilities (e.g.,education facilities, housing, and health careunits). The return of the large number ofJordanians in a short period increased thenumber of Jordanians who lived under thepoverty level up to one-third of the population.Before the Gulf crisis the total number ofJordanians who were living under poverty was600,000--almost 20 percent of the population.A study of 500 Jordanian families revealed thatJordan stepped down from a middle-incomecountry to a low-income country.(27)Salamah Hammad, writing in Sawt al-Sha'b,reported that over 1,625,000 persons hadentered Jordan between August and December1990, out of whom 885,000 continued their tripto their home countries (e.g., India, Pakistan,Philippines, Thailand, and Egypt). Thisnumber equals 23 percent of Jordan’spopulation and would be equivalent to 13million people passing through England. Inorder to help these refugees, the JordanianGovernment spent over $60 million of itsbudget, though the UN eventually reimbursedonly $12 million of that amount. Thousands ofPalestinians also stayed in Jordan because theother Arab countries that issued their papersrefused to receive them. Additionally, manyother nationalities like Somalis, Liberians, andEritreans stayed in Jordan for longer periodsuntil they could find another country that wouldaccept them.(28)Jordanian authorities did not charge therefugees or international airlines taking therefugees home any of the fees normally paid bytravelers. It also gave up the privileges of thenational Jordanian Airline Company (RoyalJordanian) and cancelled many of its flights toallow other airline companies to carry therefugees.(29)CONCLUSIONSThus, the damage of the Gulf War onJordan’s economy was multi-faceted andextensive. Jordan's economy was highlydependent on other Arab countries in severalways, and especially on Iraq. Aside from itsheavy dependence on trade, Jordan also servedas a major thoroughfare for Iraqi imports andexports and had previously prospered on thetransport of goods from the port of Aqaba toIraq. Jordan was also heavily dependent onArab financial aid, subsidized Iraqi oil, andremittances from expatriate Jordanians workingin the Gulf, and to a lesser extent, oninternational tourism—all of which came to anabrupt halt beginning with the Iraqi invasion ofKuwait.74Middle East Review of International Affairs, Vol. 6, No. 2 (June 2002)

The Triumph of the Old Middle EastIn addition, the Gulf countries stoppedimporting Jordanian products because ofJordan’s political support for Iraq, and manyJordanian employees were forced to return toJordan from Kuwait and other Gulf countries.Dealing with hundreds of thousands ofreturning Jordanians became a major challengefor the economy, which was further burdenedby over a million refugees in transit.These difficulties still affect Jordan’seconomy. Gradually, the Gulf countriesreopened their markets to Jordanian productsand their job markets to the Jordanianemployees. However, the UN-imposed tradesanctions on Iraq still strongly affect Jordan.The Gulf countries’ financial support neverreturned to the levels reached before the GulfWar and was never entirely replaced byWestern aid. Jordan still has strong economicrelations with Iraq, which supplies Jordan withoil at half the international market price. Withthis in mind, it is clear that the already weakJordanian economic situation could becomeeven worse if the conflict in the Gulf areaerupts again.*Ziad Swaidan is an Assistant Professor ofInternational Business and Mihai Nica is aPh.D. student in the Department ofManagement and Marketing at Jackson StateUniversity.NOTES1. The World Factbook 2001, [Online],availableat:. See also World Bank (2001), “Jordan at aglance”, [Online], Available at:.2. Milton Viorst, “War in the Gulf, 1990-91:The Iraq-Kuwait Conflict and Its Implications,”Middle East Policy, Vol. V, No. 4, (January1998), pp. 196-8.3. Slam al-Shawa, "Jordan Economy Loss fromThe Gulf War," Sawt al-Sha'b, Issue 2824,(February 26, 1991), p. 9.4. Economist Intelligence Unit, Jordan CountryReport, 1992-3, pp.14, 30.5. Carolyn Faraj, "Gulf War Effects on JordanIndustry," al-Ra'i, Issue 7415, (November 15,1990), p. 4.and Economist Intelligence Unit,Jordan Country Report, 1992-3, p. 30.6. "Gulf War Affected Forty Countries," al-Dustur, Issue 8489, (April 7, 1991), p. 9.7. Amman Chamber Of Commerce, "The GulfWar Effects on Jordan Economy," al-Dustur,Issue 8356, (November 25, 1990), p. 1.8. Mufleh Akil, "Jordan Economy after the GulfWar," al-Dustur, Issue 8507, (1991), p. 79. Economist Intelligence Unit, Jordan CountryReport, 1992-3, p. 26. See also previouseditions of the report.10. "By Increasing The Control On Its BordersWith Iraq, Jordan Avoided a Severe DisputeWith the U.S," al-Sharq al-Awsat, Issue 4983,(July 20, 1992) p. 10; and EconomistIntelligence Unit, Jordan Country Report,1992-3, p. 26. See also previous editions of thereport.11. "Gulf War Affected Forty Countries," al-Dustur, Issue 8489, (April 7, 1991), p. 9.12. Prince al-Hassan Bin Talal, "Gulf WarImpact on Jordan Economy," al-Dustur, Issue8349 (November 18, 1990), p. 1.13. Mudhar Badran, "Jordan Total Loss As aResult of Gulf War," al-Dustur, Issue 8448,(February 25, 1991), p. 1.14. Odeh Suleiman al-Swais, "The Gulf WarEffects On The Jordanian Per Capita," p. 10.See also Lima Nabil, “Number of JordaniansUnder Poverty Increased to One Million,” al-Ra’i, Issue 7450, (1991) p. 19.15. "Gulf War Effects on Jordan Economy," al-Dustur, Issue 8775, (February 24, 1992), p. 2.16. Sameh Hanandeh, " Jordan Lost $3.97Billion As A Result Of The Gulf War," Sawt al-Sha'b, Issue 3085, (November 20, 1991), p. 1.17. "Gulf War Effects on Jordan NationalProduction," Sawt al-Sha'b, Issue 3021,(September 17, 1991), p. 8.18. Odeh Suleiman al-Swais, "The Gulf WarEffects On The Jordanian Per Capita," Al-Dustur, Issue 8369, (December 8, 1990), p. 10.19. "Gulf War Affected Forty Countries," al-Dustur, Issue 8489, (April 7, 1991), p. 9.20. Mufleh Akil, "Jordan Economy after theMiddle East Review of International Affairs, Vol. 6, No. 2 (June 2002) 75

Gulf War," al-Dustur, Issue 8507, (1991), p. 721. "Jordan Economy Situation During TheGulf War," Akhbar al-Esb'u, Issue 1496,(January 21, 1991), p. 4.22. Economist Intelligence Unit, JordanCountry Report, 1992-3, p. 25. See alsoprevious editions of the report.23. Mudhar Badran, "Jordan Total Loss As aResult of Gulf War," al-Dustur, Issue 8448,(February 25, 1991), p. 1.24. Official statistics can be found at theJordanian Central Bank25. “Refugees Crisis,” Sawt al-Sha’b, Issue3139, (December 13, 1992), p. 1.26. See for instance, "The JordanianUnemployed Increased to 128,000, 62 Percentof Them Did Not Work Since One Year Ago,”al-Sharq al-Awsat, Issue 4931, (May 29, 1992),p. 9. See also "Labor Distribution Does not FitJordan's Local Needs," al-Sharq al-Awsat, Issue4992, (July 29, 1992), p. 9.27. Lima Nabil, “Number of Jordanians UnderPoverty Increased to One Million,” al-Ra’i,Issue 7450, (1991) p. 19.28. “Prince al-Hassan Discusses Methods toAbsorb Jordanian Returnees,” Sawt al-Sha’b,Issue 3109, (December 14, 1991), p. 1.“Refugees Crisis.” Sawt al-Sha’b, Issue 3139,December 13, 1992), p. 1. Hammad, Salamah.,"Jordan Helped the Refugees for HumanReasons." Al-Dustur, Issue 8371, (December10, 1991), p. 4.29. “Refugees Crisis.” Sawt al-Sha’b, Issue3139, (December 13, 1992), p. 1.Barry Rubin76Middle East Review of International Affairs, Vol. 6, No. 2 (June 2002)