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Tuesday, February 26, 2008

Middle Class Hit

Even as it enriches Arab rulers, the recent oil-price boom is helping to propel an extraordinary rise in the cost of food and other basic goods that is squeezing this region's middle class and setting off strikes, demonstrations and occasional riots from Morocco to the Gulf.

In Jordan, the soaring price of oil led the government to remove almost all its costly fuel subsidies this month, pushing the price of some fuels up 76 percent overnight. In a devastating domino effect, the cost of basic foods like eggs, potatoes and cucumbers doubled or more.

In Saudi Arabia, where the inflation rate had been virtually zero for a decade, it has reached an official level of 6.5 percent, though unofficial estimates put it much higher. Public protests and boycotts have followed, and 19 prominent clerics posted an unusual statement on the Internet in December warning of a crisis that would cause "theft, cheating, armed robbery and resentment between rich and poor."

The resurgence of inflation has many causes, from rising global demand to the monetary constraints of currencies pegged to the weakening U.S. dollar. But one cause is the skyrocketing price of oil itself, which is creating unheard-of riches for governments in the Gulf even as it helps push many ordinary people into poverty.

"Now we have to choose: we either eat or stay warm," said Abdul Rahman Abdul Raheem, who works at a clothing shop in a mall in Amman and once dreamed of sending his children to private school. "We can't do both."

"We're not really middle class anymore, we're at the poverty level," he said.

Some governments have tried to soften the impact of high prices by increasing wages or subsidies on foods. Jordan, for instance, has raised the wages of public-sector employees earning less than 300 dinars, or $425, a month by 50 dinars. For those earning more than 300 dinars, the raise was 45 dinars. But that compensates for only part of the price increases, and people who work in the private sector get no such relief.

The fact that the inflation is coinciding with new oil wealth has fed perceptions of corruption and economic injustice, some analysts say.

"About two-thirds of Jordanians now believe there is widespread corruption in the public and private sector," said Mohammed al-Masri, the public opinion director at the University of Jordan's Center for Strategic Studies. "The middle class is less and less able to afford what they used to, and more and more suspicious."

In a few places the price increases have led to violence. In Yemen, prices for bread and other foods nearly doubled in the past four months, setting off a string of demonstrations and riots in which at least a dozen people were killed. In Morocco, 34people were sentenced to prison Wednesday for participating in riots over food prices, the Moroccan state news service reported. Even tightly controlled Jordan has had nonviolent demonstrations and strikes.

Inflation has also been a factor - often overlooked - in some recent clashes that were seen as political or sectarian.

A confrontation in Beirut between Lebanese Army soldiers and a group of Shiite protesters that left seven people dead started with demonstrations over power cuts and rising bread prices.

In Bahrain and the United Arab Emirates, inflation is in the double digits, and foreign workers, who constitute a vast majority of the work force, have gone on strike in recent months because of the declining purchasing power of the remittances they send to their home countries. The workers are paid in currencies that are pegged to the dollar, and the value of their salaries - translated into Indian rupees and other currencies - has dropped significantly.

The Middle East's heavy reliance on food imports has made it especially vulnerable to the global rise in commodity prices over the past year, said George Abed, a former governor of the Palestine Monetary Authority and a director at the International Institute of Finance, an association of financial institutions based in Washington.

Corruption, inefficiency and monopolistic economies worsen the impact, as government officials or business owners artificially inflate prices or take a cut of such increases.

"We don't have free-market prices, we have monopoly prices," said Samer Tawil, a former economy minister in Jordan. "Cement, rice, meat, these are all imported almost exclusively by one importer here. Corruption is one thing when it's about building a road, but when it affects my food, that's different."

In the oil-producing Gulf countries, governments that are flush with oil money can soften the blow by spending more. The United Arab Emirates increased the salaries of public sector employees by 70 percent this month; Oman raised them 43 percent. Saudi Arabia also raised wages and increased subsidies on some foods. Bahrain set up a $100million fund to be distributed this year to people most affected by rising prices. But all this government spending has the unfortunate side effect of worsening inflation, economists say.

Countries with less oil to sell do not have the same options.

In Syria, where oil production is drying up, prices have also risen sharply. Although it has begun to open up its rigid socialist economy, the government has repeatedly put off plans to eliminate the subsidies that keep prices artificially low for its citizens, fearing domestic reprisals. Even so, the inflation of the past few months has taken a toll on all but the rich.

Thou al-Fakar Hammad, an employee in the contracts office of the Syrian state oil company, has a law degree and earns 14,000 Syrian pounds, or $280, a month, twice the average national wage in Syria. His salary was once more than adequate, and until recently he sent half of it to his parents.

But rising prices have changed all that, he said. Now he has taken a second job teaching Arabic on weekends to help support his wife and young child. Unable to afford a car, he takes public buses from his two-room apartment just outside Damascus to work, and can afford the better quality diapers for his child to wear only at night. He resorts to less-costly ones during the day. He cannot send anything to his parents.

"I have to live day to day," he said. "I can't budget for everything because should my child get sick, I'd spend a lot of what I earn on medication for him."

At the same time, a new class of entrepreneurs, most of them with links to the government, has built gaudy mansions and helped transform Damascus, the Syrian capital, with glamorous new restaurants and caf├ęs. This has helped create a perception of corruption and unfairness, analysts say.

"Many people believe that most of the government's economic policies are adopted to suit the interests of the newly emerging Syrian aristocracy, while disregarding the interests of the poor and lower middle class," said Marwan al-Kabalan, a political science professor at Damascus University.

The same attitudes are visible in Jordan. Even before the subsidies on fuel were removed this month, inflation had badly eroded the average family's earning power over the past five years, Tawil, the former economy minister, said. Although the official inflation rate for 2007 was 5.4 percent, government studies have shown that middle-income families are spending far more on food and consuming less, he added. In 2007, a survey by the Economist Intelligence Unit found that Amman was the most expensive Arab capital in cost of living.

Raheem, the clothing store employee in Amman, said, "No one can be in the government now and be clean." Meanwhile, his own life has been transformed, Raheem said. He ticked off a list of prices: potatoes have jumped from half a dinar to 1.19 dinars a kilo, or 77 cents a pound. A carton of 30 eggs went from 1.5 dinars to 3 dinars; cucumbers went from 35 piasters to 90 piasters a kilo. All this in a matter of weeks.

"These were always the basics; now they're luxuries," he said. With a salary of 300 dinars a month, and rent at 125 dinars, paying for food and fuel exhausts his income, he said.

"But we are much better off than others," he added. "We are the average."

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