Axing subsidies in Jordan is the first step

The government of Prime Minister Nader Dahabi, which only took office in November, removed the final subsidies in February.

It needs to build on that with further bold reforms.

Successive prime ministers have tried to scrap subsidies, but Dahabi’s Finance Minister Hamad Kasasbeh has been the man to finally abolish them.

So what happens next? One small political demonstration has been held against the new policy but, in general, political opposition to the plan has been muted.

This may be because demonstrations have to be authorised by Jordan’s powerful General Intelligence Department, rather than because people are entirely happy with the policy.

People have good reason to feel disgruntled. Inflation has risen since subsidies were scrapped, and not just because of rising fuel prices. The government forecasts inflation will be 8-9 per cent in 2008, but others suggest it will be even higher. Ratings agency Standard & Poor’s forecasts inflation of 10 per cent.

The cost of some basic foodstuffs increased within a fortnight of the decision, as retailers took advantage of their new-found freedom to set prices.

A box of eggs that cost JD2 ($2.84) in January now costs JD3.50. A bottle of sesame oil has gone from JD1 to JD2.

The end of subsidies has in effect highlighted other underlying problems in the economy: how it relies on a handful of individuals who can quickly increase prices by up to 100 per cent, a small number of powerful trading firms that import the food Jordan needs for its growing population.

Having made the politically tough decision to end subsidies, Dahabi and Kasasbeh’s next task is clear. They cannot reverse their decision, but they need to build on it. What is needed now is a more open, com-petitive economy.