Tunisia crisis: ‘Social costs of austerity not on government’s radar’

Tunisians marked the seventh anniversary of the Arab Spring uprising with a peaceful rally against austerity measures on Sunday, capping a week of sometimes violent protests triggered by tax and price hikes.

The North African country is seen as having enjoyed a relatively smooth democratic transition since the January 14, 2011 toppling of President Zine El Abidine Ben Ali after 23 years in power. Seven years later, however, anger over rising prices and the country’s persistent economic problems is again boiling over.

Designed to revive the economy while meeting Tunisia’s agreements with international donors, the government’s new financial bill came into effect on January 1. Yet after a week of fierce protests, critics say the new measures are only exacerbating the problem.

our reporters spoke with Max Gallien, a PhD candidate and researcher on the political economy of North Africa at the London School of Economics (LSE), about the economic situation in Tunisia, and how this has informed the current crisis.
Max Gallien: It is important to distinguish between this new spike that we are seeing since January 1 – which is partly due to the new measures in the financial law, and also due partly to the response of shops and merchants to increases in taxes and tariffs – and the backdrop of rising inflation in Tunisia over the last few years, connected to the continuous depreciation of the dinar. Tunisia imports a significant amount of food, so this is quite directly influenced by the currency crisis.

Who is to blame? It is a combination of larger macro-economic factors that will be a reality for the foreseeable future, but also government policy that has been fixated on deficit reduction.

The social costs these reforms will have on people across the country has not been on the government’s radar. That is the case, for example, when we look at rising prices and compare them to the relatively limited rise in the minimum wage over the last couple of years.

The other major factor are international financial institutions, particularly the IMF [International Monetary Fund], which has been pushing towards austerity programs and devaluation of the dinar.

You mentioned the government’s financial bill, that passed controversially last year and came into effect on January 1 – what has this meant to the average Tunisian?

There are subtle differences between what is in the bill, and the actual results.

First, there have been VAT increases across three tax brackets – all of them increasing by 1%. There are also individual increases for specific businesses, like car dealerships and large scale commercial platforms, as well as a relatively small decrease in subsidies.

But the main thing this has meant for Tunisians is that, having already faced steady increases in the price of things like gas, electricity and food in recent years, they have once again seen another spike on January 1. Tunisians report that shops are now 10-15% more expensive than they were even just a few weeks ago.

The IMF approved a 2.9-billion-dollar loan for Tunisia in 2016, but froze the second installment last year until Tunis demonstrates its commitment to austerity. Prime Minister Youssef Chahed’s response by pushing through a reform budget  has triggered these protests. Is the government stuck between a rock and a hard place, and is there a way out?

It is a difficult question, as it is hard to unpin how much of this is IMF pressure and how much these reforms are due to the ideological position of this government – and whether this would remain unchanged if the IMF were to back off.

The government likes to present itself as being stuck between strong unions on the one hand, calling for one thing, and international financial actors calling for another.

To formulate any immediate way forward is difficult, though if the international community and international financial institutions were to take a different approach to Tunisia it would be of extreme importance to any step out of the current predicament.

What would this change to the international community’s approach look like?

The first thing would be to think of the social impact of the reforms we are seeing now. This impact should not be suprising to anyone who has monitored the Tunisian economy, and it should have disqualified these reforms before they happened.

So something to change would be to keep an eye on the social impact of any of these reforms, without just looking at deficit reduction, and then also to give the Tunisian government more breathing space with international lenders.

Tunisia’s social affairs minister, Mohamed Trabelsi, announced on Saturday certain concessions and welfare increases.

Will these be enough to placate those protesting?

The government has a serious credibility issue, meaning this tactic may well prove ineffective. People have grown sceptical of government promises. I am personally sceptical of whether the government’s promises [to increase monthly aid and improve access to medical care and housing for families in need – editor’s note] will be enough to change the situation and thereby ease tensions.

They are short-term fixes for a much bigger problem.

What steps should the government take to change its economic policy and address the situation?

If we look at the way the Tunisian government after 2011 has addressed the legacies of economic authoritarianism in the country, there has been a focus on addressing the legacy of state overreach – of corruption, of state involvement with certain business families.

But there has been very little thinking about the effects of state neglect, where the state previously fell short, for example in improving infrastructure in interior regions [as opposed to wealthier coastal areas – editor’s note], or creating access to a labour market that goes beyond public sector hiring.

Instead, the focus has been on ‘levelling the playing field’. Simply put, this just won’t work for everybody, because the playing field has been uneven for so long. You have to help people up first.

There are people who have been shut out of the labour market entirely, living in regions with poor infrastructure where no private investment will go without incentives. Meanwhile the education system in some areas appears to have been purposefully allowed to deteriorate.

There need to be specific economic interventions in these regions, and these things are going to be costly and they will have to go through the state.

These things do not work well with the current ideology that dominates Tunisian economic policy, but they are absolutely essential.

You mentioned ‘levelling the playing field’. The idea was recently thrown into question by a controversial law granting amnesty to businessmen accused of corruption before the 2011 revolution. The government said it was economically necessary:

is this the case?

The economic rationale behind the law has always been questionable to say the least.

The idea that it will help investment has been used to justify just about anything. It has not been questioned as it should have been. In Tunisian media self-declared ‘economists’ have given specific GDP growth figures claiming the law would lead to a 1.2% increase. This is absolutely preposterous. There is no economic model in the world where pardoning 2,000 corrupt bureaucrats leads to 1.2% growth.

It is this kind of pseudo-economic language that has been used to justify things that have nothing to do with investment in Tunisia.

Does Tunisia simply need more time to address these pressing economic issues?

Time is a factor of course. Yet I don’t think it’s an issue of walking too slowly, but in the right direction.

There needs to be a different approach by the government towards the economy, but as I mentioned before it is important to stress the role of the international community in terms of its priorities for Tunisia.

If you look at how the international community was able to do bring money to address the security situation in the country, the same approach is needed for the economic disparities in Tunisia: they threaten its stability in the same way.

Finally, following these reforms the government has assured 2018 would be the last hard year for Tunisia – is this feasible, or just empty rhetoric?

It is utterly unfeasible. If we look at the debt repayment structure that Tunisia is facing, and the larger macro-economic trends with respect to inflation, currency and wages, the idea that if things continue as they are the situation will improve is absolutely ridiculous.

You have to ask – who is really causing harm to the economy? If you push reforms to the point where people are so destitute they believe the only way to engage is to protest, then your reforms are not sustainable. […] Blaming protestors for prolonging the crisis is the same as blaming the ‘canary in the coalmine’.

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