‘Disappointment’ after Arab Spring is a key risk
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Emerging Markets

‘Disappointment’ after Arab Spring is a key risk

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Policymakers in post-revolution countries in the Middle East will have to contend with public disappointment at the perceived slow progress of reforms, a senior World Bank director has warned

It could take up to four years to deliver economic reform and job creation in the Middle Eastern countries shaken by the Arab Spring revolutions, a senior World Bank official has warned.

Sri Mulyani Indrawati, the Bank’s managing director for the Middle East and North Africa (MENA) region, said there was a risk of “disappointment” among people who rose up against their corrupt rulers.

Sri Mulyani, who became finance minister of Indonesia after playing a key role in the protests against the corrupt regime of President Suharto, said she drew on her own experience when the revolutions broke out across the Arab region.

“The most critical part is going to be managing the expectations,” she said in an interview with Emerging Markets. “When people see the political change happening rapidly, people think the situation will change accordingly and immediately.

“But that’s not going to happen. And that’s what also happened in Indonesia. The first indication of this gap between expectation and reality is actually disappointment – and that happened in Indonesia for the first three or even four years [after Suharto’s resignation].”

In May, the G8 group of rich countries pledged E20 billion of financial support to the MENA region to be channelled through the European Bank for Reconstruction and Development and the African and Islamic development banks.

Sri Mulyani said the task for policymakers was to identify areas that could be dealt with most quickly and which were most affordable.

“Fiscal constraint is going to be there with economic deterioration. Revenues will be squeezed, while the pressure on the popular side is very strong,” she said, adding that government subsidies to offset fuel price rises would add to pressure on budgets.

“So you will see that the combination of their own fiscal situation, which is very limited, with the pressure from the populace in terms of delivering a better environment – according to their own expectation – is creating a very real pressure.”

And she warned: “If it is not handled well, you are going to see confidence weakening.” Policymakers had to present “a more realistic picture” to the population.

The Bank is forecasting that growth in the MENA region will average 4.1% this year and 3.8% in 2012 – although global uncertainty is clouding the horizon.

The International Finance Corporation, the Bank’s private sector lending arm, aims to invest up $6 billion, including $2 billion in mobilization, in MENA by 2015, its CEO told Emerging Markets.

Lars Thunell said that $1.7 billion was invested in the year to June 2011, directed towards creating jobs by stimulating private-sector growth.

Stimulating entrepreneurship is a priority, Thunell said. “The thing we are really focusing on as part of this is the whole question of creating jobs.

“The important thing is to have small firms grow and move from the informal to the formal sector, because we know that [as a result, they] will employ eight times as many people over time.

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