Jordan’s Dutch Disease

Back in the early 1970s, a huge natural gas windfall gifted the Netherlands a strong currency and a budget surplus, but failed to improve fundamental underlying weaknesses in the country’s economy such as its uncompetitive industrial base. The term ‘Dutch disease’ was later coined for this type of disparity.

Jordan’s economy experienced something similar in the mid-1970s and early 1980s after it got major injections of foreign aid. Thankfully, most of this was used to build and enhance infrastructure. So the economy enjoyed a strong currency, backed by huge foreign reserves, but still it suffered from the curse of uncompetitive industrial base due to the effective, relatively high exchange rate.

With the fall in foreign assistance from the Gulf countries in the second half of the 1980s, the economy regressed into a crisis that lasted well over two decades.

We’re not in this position today, but there are ominous signs. The huge foreign reserves we built up over the last five years or so have done a decent job of securing the dinar. However, the misuse of more than $9 billion in foreign assistance seems to have left Jordan afflicted with the Dutch disease. The currency has been strengthened in the short to medium-term, but the economy has weakened.

Not only did we fail to properly invest this foreign assistance in sustainable economic projects within the economy, but we also largely ignored the opportunity to benefit from the human capital provided by the Syrian refugees themselves. We asked the international community for more and more assistance to mitigate the impact of receiving enormous numbers of displaced people, but we completely missed the chance to treat them as a fresh economic resource and benefit from their agricultural, industrial, and vocational skills.

We had better start engaging this new economic resource, instead of leaving it to be exploited by the black economy. A strong currency is always needed and necessary, but it’s not enough to build a strong economy.