US embassy cable - 05AMMAN4780

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 004780 
 
SIPDIS 
 
E.O. 12958: DECL: 06/15/2015 
TAGS: PGOV, EAID, ECON, EPET, JO 
SUBJECT: THE COMBUSTIBLE POLITICS OF FUEL SUBSIDIES IN 
JORDAN 
 
REF: A. AMMAN 4652 
     B. AMMAN 4362 
 
Classified By: CDA David Hale for Reasons 1.4 (b), (d) 
 
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SUMMARY 
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1.  (C) Proposed plans to end fuel subsidies have already 
elicited howls of protest throughout Jordan.  Numerous MPs 
have confirmed that blocking an increase in fuel prices is 
one of the top concerns of their constituents, and the 
Islamic Action Front has made opposition to fuel price 
increases a centerpiece of its strategy to boost its popular 
appeal.  The partial lifting of fuel subsidies in 1989 
sparked riots in southern Jordan and led to the collapse of 
the government.  Eager to avoid a similar crisis, the GOJ 
plans to phase in the lifting of subsidies over a period of 
three years or less.  End Summary. 
 
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PAYING MORE FOR FUEL 
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2.  (C) In an effort to shore up a bleak budget picture, and 
under pressure from the IMF, the GOJ is on the verge of 
agreeing to a plan to remove subsidies on fuel products, as 
well as on other items.  (NOTE: While the government has 
argued for at least a three-year period in which to raise 
prices to market levels, the Finance Ministry sent a letter 
on June 12 to the British and Germans laying out a more 
aggressive plan that would end fuel subsidies in less than 
three years.  END NOTE.)  Currently, the largest government 
subsidy goes toward diesel fuel, which is of critical 
importance to farmers and the Jordanian trucking sector which 
forms an important part of the economy of the restive region 
around the city of Ma'an (septel) in the south.  Kerosene, 
another subsidized fuel product, is used by millions of poor 
Jordanians to heat their homes and for cooking. 
 
3.  (C) While no formal announcement of a fuel price hike has 
been made, cabinet members informed Charge that the 
government agreed in principle on June 7 to start this year 
with a phased elimination of subsidies by 2007.  According to 
these ministers, PM Badran -- who must still face a 
confidence vote in parliament in the next six months -- was 
very reluctant to begin this year, and was persuaded only by 
a forceful presentation by an IMF mission.  The issue has 
already drawn intense public attention.  For example, two 
major Arabic dailies, Al-Rai and Al-Arab Al-Yawm, printed 
front page reports June 13 on the impact of high fuel prices 
on the growing budget deficit and tentative GOJ plans to 
raise the price of certain fuels in response.  Initial 
reaction among the general public to a proposed fuel price 
hike has been resoundingly negative.  Numerous MPs, 
particularly those representing underprivileged areas and 
refugee camps, have told poloff that the price of fuel is one 
of the top concerns of their constituents and that they are 
under heavy pressure to vote against any price increase in 
parliament.  Attempting to exploit the public mood, the 
Islamic Action Front (IAF) has publicly called on the GOJ to 
categorically reject pressure to raise fuel prices and has 
made opposition to the elimination of fuel subsidies a 
central tenet of its strategy to boost its popular appeal 
(ref B). 
 
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A DANGEROUS PRECEDENT 
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4.  (C) Post contacts are unanimous in cautioning that the 
lifting of fuel subsidies could have serious negative 
consequences for the GOJ if implemented too abruptly and 
without a concerted effort to soften the blow on poorer 
Jordanians.  Many hearken back to the political crisis of 
1989 that was triggered by a similarly unpopular fuel price 
hike.  Specifically, in early 1989 the GOJ began implementing 
an IMF structural adjustment program in response to mounting 
foreign debt.  In April of that year, the government began 
lifting several price supports, including a fuel subsidy, 
sending gasoline and diesel prices up by 30% overnight.  This 
measure hit the trucking industry around Ma'an particularly 
hard, which was already suffering from a slowdown following 
the end of the Iran-Iraq war.  Riots broke out in Ma'an the 
day the reforms went into effect and at least five protesters 
were killed by police (in addition to dozens of injuries). 
The unrest spread quickly throughout Jordan, coinciding with 
the start of Ramadan and reflecting strong nationwide 
dissatisfaction with the government's IMF-inspired policies. 
Faced with growing discontent, the government eventually 
collapsed. 
 
5.  (C) The replacement of the cabinet did not end the 
crisis, however.  Although the early demands of the rioters 
did not include calls for political reforms, the late King 
Hussein approved national parliamentary elections (the first 
since the suspension of parliament following the 1967 war 
with Israel) in an effort to deflate tension over economic 
issues, or at least to direct dissent into channels that the 
state could monitor and control. 
6.  (C) Social unrest over price hikes has not been limited 
to fuel.  In August 1996, for example, riots broke out in 
Kerak and other towns in traditionally pro-Hashemite areas 
when bread prices almost tripled after government subsidies 
were decreased.  (NOTE: The GOJ is currently considering the 
removal of all subsidies on bread at IMF insistence.  END 
NOTE.)  There were also protests that same year targeting the 
Ministry of Education caused by a hike in school fees 
connected with the IMF program. 
 
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COMMENT 
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7.  (C) While the new reformist cabinet has continued appeals 
for further oil grants from Gulf states (which have been slow 
in coming), it nevertheless recognizees that the end of fuel 
subsidies is overdue.  Their day of reckoning, however, 
unfortunately comes at a time when oil prices are at historic 
highs in nominal terms.  Wary of the volatile history of 
price liberalization in Jordan, and already suffering from an 
acute lack of public confidence (ref A), the GOJ is hoping 
that a gradual, phased-in lifting of fuel subsidies will 
minimize the potentially serious repercussions that higher 
prices could generate. 
HALE