11:29am

Wed April 13, 2011
World

World Will Help New Democracies, But How Much?

The international community is eager and interested in helping the nascent democracies of the Arab world get on their feet.

But three months after protests took root and Tunisian President Zine El Abidine Ben Ali fled the country, it's still not clear what form outside assistance ultimately will take.

At the spring meeting of the World Bank and International Monetary Fund, being held this weekend in Washington, discussions among central bankers and finance ministers will be dominated by the European debt crisis. But they'll also talk about how much money to offer countries like Tunisia and Egypt.

The economies of those countries have been hurt by the recent upheaval, but they had experienced a good deal of growth in recent years. They have managed to keep their debts low.

That makes it less clear what sort of strings they'll accept along with assistance, outside observers say. The new leaders in Tunisia or Egypt may not want to signal — by accepting significant amounts of help — that they'll continue moving economically in directions favored by the international finance institutions.

"If they ask for help — even if it's large amounts of money, even billions of dollars — they will get it from the World Bank," says Uri Dadush, a former director of international trade at the bank. "But a huge part of it will depend on whether Tunisia and Egypt ask for help, and how much."

A Model Of Reform

The two countries, and Egypt in particular, have been seen in recent years as model economic "reformers" by the World Bank, having taken measures to promote growth such as reducing personal and corporate income tax rates and tariffs on trade.

But in both countries, economic problems such as income inequality and rising food prices contributed to unrest. The wealth that was generated was not spread throughout those societies, due to corruption and sweetheart deals involving the country's leading families and the Egyptian army, area experts say.

Although both Tunisia and Egypt have a sizable middle class, unemployment and underemployment remain big issues. The new governments of the countries — particularly those that will take power following elections in the coming months — will therefore be under pressure to steer an economic course that shares the fruits of growth more widely.

"How do they maintain economic policies when you have this real cry from the street for help with jobs, food prices and all the things people have been agitating about?" says Mohsin Khan, former director of the IMF's Middle East and Central Asia department. "It's going to be a very difficult thing, keeping economic policies or reforms on track and at the same time satisfy the demands of people on the street."

More Populist Approaches

The pressure to immediately address the needs of the population could put these countries at odds with the policies typically favored by the World Bank and the IMF. Egypt's finance minister has sought to assure international investors that no great sea change is at hand. There's even talk of reviving the idea of a free trade agreement with the U.S., which went dormant due to irregularities in the 2005 Egyptian election.

But Egypt is bound to ask for forgiveness of debts run up by the Hosni Mubarak regime. And the head of Tunisia's central bank, Mustapha Nabli, has said there "is going to be a slowdown in market reforms."

"Will they reverse the reforms taken to date, or put those on hold and engage in stimulus?" asks Khan, now a senior fellow at the Peterson Institute for International Economics. "There's a real risk of populist governments coming into power in the two countries and undertaking populist policies. They are going to be really pressed to expand employment through the government, and that will have budgetary consequences for these countries."

Building Civil Society

During a speech last week, World Bank President Robert Zoellick said the bank will have an interest in helping to build up civil institutions in countries such as Egypt and Tunisia.

"In one way or the other, a modernized multilateralism needs to recognize that investments in civil society and social accountability will be as important to development in the Middle East and beyond as investments in infrastructure, firms, factories or farms," Zoellick said.

That represents a welcome change in the bank's thinking, says John Norris, a former State Department official. The bank was "fairly willful" in ignoring the role Egyptian leaders and the Army played in running the economy, he says.

There will be a need for outside assistance in helping set up the infrastructures that underpin democracy, such as independent judiciaries and election boards, as well as schools.

"Nascent democracies coming out of turbulence are vulnerable," says Norris, now the executive director of the Sustainable Security and Peacebuilding Initiative at the Center for American Progress, a progressive think tank. "The stakes are incredibly high."

A Middle East 'Marshall Plan'

The desire to help these countries build democracies and achieve stability is widely shared.

"There are going to be a lot of very important stakeholders who want to make sure that this transition succeeds," says Dadush, a senior associate and director at the Carnegie Endowment for International Peace. "The Chinese and Indians are big oil importers; they will want to see the region stable."

The prime ministers of Israel, Spain and Italy have all called recently for a "Marshall Plan" to help the countries of the Middle East and North Africa.

"Instead of the money going for rebuilding industrial plants and roads, it more likely would be spent on schools, health clinics and clean water," Tennessee Republican Lamar Alexander said in a Senate floor speech last month, laying out his ideas for a "new Marshall Plan for the Middle East."

But even as many nations will be seeking help in building up their societies, there may be less money available from rich countries. Alexander's plan calls for private donors and foundations to put up billions of dollars, not governments.

The budget agreement brokered last weekend would cut $377 million from the U.S. contributions to the United Nations and other international institutions, as well as $110 million from the State Department's Civilian Stabilization Initiatives.

Those reductions from the prior year's spending levels are among a long list of cuts made to State Department programs. And foreign aid is expected to be a prime target for spending cuts in the upcoming debate over next year's federal budget.

"The U.S. is being seen as not being in the same position to help the emerging markets, which is unfortunate," says Desmond Lachman, a resident fellow at the American Enterprise Institute, a conservative think tank.

Who Will Pay?

U.S. diplomats would like to encourage the oil-rich states along the Persian Gulf to offer major financial support to their neighbors, observers say. But countries such as Saudi Arabia have been left more nervous than inspired by the push for democracy in the region.

"The rich Arabs have been so opposed to the whole change in the Middle East, I'm not sure they'll be ready to contribute to democratization," says Khan, the Peterson Institute fellow.

The World Bank and the IMF, although operating under constraints, will be able to come up with the initial, relatively small amounts of money that Egypt and Tunisia might be ready to accept, says Dadush, the Carnegie Endowment director. But they won't have enough money available to offer all of the assistance they might need in the coming years.

"A billion or two, that order of magnitude is available," Dadush says. "But for Egypt, in particular, these are not huge amounts, not going to solve all their problems."

The amount of longer-term help on offer will depend not only on financial constraints but on how events play themselves out and what political positions those countries take, Khan says.

"Certainly investors are going to wait for a new government before they're going to commit to investing in those countries," he says. "The international financial institutions are in the same position. They're going to have to wait to see what the new governments are going to want from them." Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.