US embassy cable - 04AMMAN1452

C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 001452 
 
SIPDIS 
 
E.O. 12958: DECL: 02/25/2014 
TAGS: PGOV, ECON, EFIN, JO 
SUBJECT: JORDANIAN MPS APPROVE GOVERNMENT BUDGET, BUT WARY 
OF PRICE & TAX INCREASES 
 
REF: AMMAN 00652 
 
Classified By: Ambassador Edward W. Gnehm for Reasons 1.5 (b), (d) 
 
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SUMMARY 
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1.  (C) Following a lengthy debate, 77 out of 97 deputies 
present in the Lower House of the Jordanian Parliament voted 
February 19 to approve the government's budget for 2004 as 
proposed.  Prior to the vote, the government made a concerted 
effort to engage MPs and public opinion makers on the need to 
address the country's financial deficit, but many MPs 
continued to resist plans to increase subsidized prices of 
petroleum products and to raise the sales tax.  Although 
Prime Minister Fayez publicly promised to reevaluate these 
revenue-generating measures, senior Jordanian officials, 
including the Prime Minister, the Deputy Prime Minister, and 
the Minister of Finance reassured Under Secretaries Larson 
and Taylor and the Ambassador that the government remains 
committed to implementing fuel price hikes.  End summary. 
 
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LOPSIDED VOTE FOLLOWS LONG DEBATE 
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2.  (U) After four consecutive days of debate, the Lower 
House (i.e., the Chamber of Deputies) of the Jordanian 
Parliament approved overwhelmingly on February 19 the 
government's proposed budget for 2004 by a vote of 77 to 20. 
Thirteen deputies were not present for the vote.  Of those 
weighing in against the budget, 14 belonged to the Islamic 
Action Front (IAF).  All other parliamentary blocs voted to 
approve the budget, although MP Mamdouh Abbadi (East Banker, 
Amman-3rd District), former mayor of Amman, defied his 
Democratic Alliance bloc to cast a negative vote. 
 
3.  (C) Prior to the debate, the budget had been reviewed and 
approved by the Chamber's Finance Committee.  MP Abdullah 
Al-Jazi (East Banker, Southern Badia) told PolOff that the 
budget did not face serious opposition in committee since he 
and most other members of the Finance Committee were solid 
supporters of the government.  (Five of the 11 committee 
members, including Al-Jazi, belong to the pro-government 
National Reformist bloc.)  The committee did, however, issue 
a number of "recommendations" for the government to consider, 
including increasing the income tax on insurance companies 
from 25 to 35 percent to generate additional revenue. 
 
4.  (U) During the debate on the Lower House floor, 103 
deputies of the 110-member Chamber engaged in a marathon of 
comments focused not only on the budget, but on demands for 
services for their constituents as well.  Under current Lower 
House rules, debates prior to votes on legislation can 
continue as long as deputies continue requesting from the 
Speaker time on the floor.  Several local pundits criticized 
MPs for straying far from the budget in their speeches. 
Prominent columnist and TV show host Jamil Nimri, for 
example, labeled the debate as "exceeding the limit since MPs 
have already delivered their views and demands during the 
policy statement debate." 
 
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GOJ GOES ON OFFENSIVE TO DEFEND PRICE/TAX HIKES 
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5.  (C) As reported reftel, Prime Minister Fayez announced in 
January plans to raise subsidized prices of petroleum 
products by an average of nine percent and to increase the 
general sales tax rate from 13 to 16 percent.  45 out of 67 
deputies attending a special meeting in January approved a 
non-binding resolution against these measures intended to 
shore up the government's financial deficit.  Apparently 
caught off guard by this strong opposition, and nervous of 
possible repercussions on the budget itself, Fayez and his 
Cabinet engaged in "damage control" to counter the 
resolution's symbolic impact.  Government Spokesperson Asma 
Khader quickly told reporters after the resolution that the 
government "respects and understands the will of the people's 
representatives" and plans to "reach a formula acceptable to 
both parties," though she cautioned that "other solutions are 
hard to find under the circumstances."  Fayez and Finance 
Minister Mohammed Abu Hammour subsequently met with the MPs 
of each of the parliamentary blocs, including the IAF, to 
explain both the reasons and the necessity for the proposed 
tax and price increases.  According to press reports, Fayez 
stressed his awareness of the plight of the Jordanian poor 
and pledged to ease the impact of any decision to increase 
prices and taxes. 
 
6.  (C) In addition to meeting with MPs, Senator Jihad 
Al-Momani, who is also editor-in-chief of the "Shihan" weekly 
paper, told EmbOff that Fayez, Finance Minister Mohammed Abu 
Hammour and other government officials arranged an 
unprecedented "off the record" meeting with about 30 editors 
and columnists on February 11 to discuss Jordan's financial 
situation.  According to Momani, Fayez acknowledged missteps 
in explaining the need for price and tax increases to the 
public and said that the government planned to take visible 
action on high-profile corruption cases, and to enact 
government belt-tightening measures, before implementing 
these increases.  Fayez also expressed frustration with 
unwise "conspicuous consumption" by low-salaried Jordanians, 
particularly with respect to cell phones and automobiles, and 
defended U.S. economic assistance as more than generous. 
Concurrent with this meeting, Khader announced that the 
government had recently referred two major corruption cases 
to the General Intelligence Department's Anti-Corruption Unit 
for investigation and would seek further savings in 
government expenditures. 
 
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MPS REMAIN SKEPTICAL 
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7.  (U) Despite the government's efforts, many MPs continued 
to express opposition to price increases and tax hikes during 
the budgetary debate.  IAF MP Mohammad Abu Fares (West 
Banker, Amman-5th District) reiterated the views of other 
Islamist deputies in demanding that the government "deal with 
the budget deficit without hiking prices and removing fuel 
oil subsidies like previous governments did."  MP Khalid 
Breik (East Banker, Northern Badia) pointed to a perceived 
widening gap between rich and poor and called for stricter 
measures in collecting taxes from the affluent rather than 
price and tax increases that would hit lower-income 
Jordanians hard.  Other deputies, however, defended the 
government's proposed measures.  MP Nayef Abu Mahfouz (West 
Banker, Amman-4th District), for example, stated that price 
hikes "are part of (the government's) commitment to the 
decade-long economic reform program." 
 
8.  (U) In a brief address to the Lower House prior to the 
budget vote, PM Fayez told MPs that the government "will look 
again at the (price hikes) and search for alternatives to 
ease hardships on the poor."  He further reiterated that "we 
are considering raising the salaries of military and civilian 
employees as well as pensioners."  Finance Minister Abu 
Hammour similarly told MPs before the vote that "in 
accordance with House wishes, the government will reevaluate 
the (price increases) proposed to the legislature earlier," 
and said that lower income categories would be taken into 
consideration when raising prices.  "Financial burdens, 
however, will be placed on tobacco, alcohol, and mobile phone 
users," he added. 
 
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GOJ COMMITTED TO RAISE PETROLEUM PRODUCT PRICES 
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9.  (C) In meetings February 21 and 24, State U/S Larson and 
Treasury U/S Taylor heard from their interlocutors, including 
Fayez and Abu Hammour, that the GOJ was committed to fiscal 
discipline and to weaning the budget off its former reliance 
on subsidized oil grants.  They were very pleased with their 
success in the Lower House, seeing it as a vindication of 
their efforts to be transparent and open with Parliament and 
the public about Jordan's economic challenges.  Abu Hammour 
detailed efforts to restrain spending to meet IMF-agreed 
deficit targets, but noted that a sharp drop in foreign 
grants and the deferral of some payments due in 2003 would 
make reaching the 3.9 percent of GDP target for 2004 
especially tough.  Accordingly, he pledged that petroleum 
product prices would be raised as planned.  Abu Hammour also 
said, however, that he had agreed to take another look at the 
impact of an increase in bottled gas prices on the poor. 
 
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COMMENT 
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10.  (C) Perhaps stung by the backlash generated by the 
candid announcement in January of proposed price increases 
and tax hikes, PM Fayez and his ministers were careful to 
engage MPs and public opinion makers prior to the budget 
vote.  Through private meetings and public statements 
emphasizing the government's concern for less-affluent 
Jordanians, the government paved the way for the Lower 
House's overwhelming approval of the budget and, it hopes, 
possibly softened public reaction in advance of an eventual 
increase in fuel prices and the sales tax. 
 
11.  (C) Though it won the budget battle in Parliament, the 
government still faces a public perception problem -- on one 
hand it is widely seen as "spendthrift" (complaints about 
frequent royal overseas travel and expensive cars for 
high-ranking military and government officials are common), 
while on the other hand it claims that the people must 
tighten their belts and pay higher prices.  Given these 
contrasting images, Fayez and his ministers should not have 
been surprised by the outcry against price hikes and tax 
increases.  They would do well to remember the importance of 
shaping public and parliamentary opinion in preparing for 
future reform measures. 
 
Please visit Embassy Amman's classified web site at 
http://www.state.sgov.gov/p/nea/amman/ or through the 
Department of State's SIPRNET site. 
GNEHM