VZCZCXYZ0012
PP RUEHWEB

DE RUEHTU #0635/01 0761544
ZNR UUUUU ZZH
P 171544Z MAR 06
FM AMEMBASSY TUNIS
TO SECSTATE WASHDC PRIORITY 0141

UNCLAS TUNIS 000635 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB, NEA/MAG (LAWRENCE,) NEA/PPR AND EB/CBA, STATE 
PLEASE PASS USTR (BELL), USDOC FOR CLDP (TEJTEL) AND 
ITA/MAC/ONE (TCHERGUR) 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EPET TS
SUBJECT: WORKING-CLASS OPINIONS AND COMMENTS IN TUNISIA 
(PART 2 OF 3):  FUEL PRICES, INFLATION, FINANCING 
MECHANISMS AND CREDIT 
 
REF: A. REF A: TUNIS 357 
     ¶B. REF B: 05 TUNIS 2409 
 
 ¶1.  SUMMARY:  Throughout 2005 and early 2006, Tunisians have 
complained about rising price levels.  Everything from olive 
oil, to gasoline, to automobile insurance has seen price 
increases in recent months, and there is a rise in official 
and actual inflation.  Middle-class to lower-income Tunisians 
admit to a growing reliance on credit to fund regular 
expenses.  The incidences of speculation on and personal 
experiences with a more developed economy are also 
increasing.  END SUMMARY. 
 
Fuels Prices, Heating for Homes and the General Price Level 
--------------------------------------------- -------------- 
 
¶2.  Gasoline in Tunisia is currently 1.00TD per liter, 
(approximately .75 USD) which is a sizable increase from one 
year ago, when gas was .70TD-.80TD per liter.  Over the year, 
there were four increases in gas prices, representing a 25-30 
percent annual increase.  The general buzz is that everyone 
is expecting another increase in gasoline prices, which would 
put the speculated price in the 1.20TD range in the near 
future. 
 
¶3.  Meanwhile, heating costs for homes have remained stable 
over the winter, or gone up only slightly.  Heating methods 
vary and include electric heating; steam-heated radiator 
systems; natural gas; blue gas, which is liquid fuel in a 
portable gas burner; and the traditional charcoal pot.  Only 
about 10 percent of the population continues to use a 
charcoal pot in the house, which has an open flame and is 
clearly more dangerous.  Nowadays, charcoal pots are found 
mostly in rural areas, or as novelty items in the city for 
people who want to have them for sentimental reasons. 
However, one lower-income woman told Commoff she still heats 
her home with a charcoal pot to control heating costs.  The 
majority of working class Tunisians interviewed use blue gas. 
 
 
¶4.  In addition to rising fuel costs, overall inflation has 
risen as well.  Even during good harvest years, like 2005, 
consumers have not seen the expected price decrease on 
locally-produced staple food items, such as olives, oils, 
vegetables and fruits (Ref B).  With local concerns about 
avian influenza causing a 40 percent decline in retail sales 
of poultry this spring, the demand for meat and fish has 
risen, and so have their prices.  A local Coca-Cola official 
recently explained that the company does monthly computations 
of a representative consumer basket of goods.  Over the 
course of the past year, it has noticed a general price 
increase of consumer goods of 16 percent.  Car insurance 
rates are also rising; however, this rise may be compounded 
because of additional cars on the road, a situation that 
leads to more accidents.  One woman's car insurance was 195TD 
five years ago; the same policy on the same car, five years 
older, is 300TD per year. 
 
¶5.  The official GOT figure for inflation in 2005 released by 
the Tunisian National Institute of Statistics (INS) is 3.9 
percent.  The IMF lists 2005 consumer prices in Tunisia as 
growing at 2.9 percent annually, with a predicted drop to 2.5 
percent in 2006.  Further, the IMF states that inflation is 
under control in Tunisia.  (NB:  This range of inflation is 
comparatively healthy for an emerging economy with a growth 
rate in the 5 percent range, and not actually a cause for 
alarm.  These statistics provide a measurable example of 
Tunisia's evolution to an emerging economy.)    Irrespective 
of price increases and inflation rates, so far, most of the 
people interviewed have managed to maintain their consumption 
levels.  They may be complaining actively, but they have not 
yet started cutting consumption seriously. 
 
Borrowing 
--------- 
 
¶6.  It's clear that people are spending more money on daily 
expenses, especially during Ramadan (Ref B), but where is the 
extra money coming from?  Simply put, many people are 
borrowing money for consumption.  They either take advances 
on their salaries or take out loans.  Poorer people with no 
access to credit borrow money from family, friends, or 
colleagues.  One woman said she loaned a colleague 50TD for 
Ramadan.  She was told she would be paid back by the end of 
November, but she expected to see the money returned around 
the time of the Eid el Kebir, (January 20th this year).  She 
was eventually repaid, but not until the end of January. 
 
 
¶7.  Many banks offer 500-1,000TD loans for Ramadan, for the 
Eid, or for family vacations.  An air ticket to France can be 
bought with only 25 percent down, with the rest financed for 
weeks following the trip.  A common phrase advertised in 
shops during the holidays was "buy now during Ramadan, pay 
after the Eid."  For larger items, consumers might take up to 
five years to repay a loan.  One man told us he financed his 
daughter's summer wedding with a 16,000TD five-year loan. 
This is a sizeable sum, considering that he is supporting a 
family of four (after the wedding) on a monthly income of 
1,238TD. 
 
¶8.  People can finance the "Omra" and the Hajj, and even the 
traditional sheep for slaughter at the Eid al-Adha.  This is 
an interesting development for a Muslim country, where 
religious practices dictate that charging or receiving 
interest is forbidden, but even so, the practice is quite 
common and growing. 
 
Saving and the Future 
--------------------- 
 
¶9.  Another middle-class woman lamented that her family 
doesn't save money anymore--it spends it all on monthly bills 
and consumption.  Their mortgage is 437TD per month.  She 
complained that they used to make less money, yet saved more 
in the past.  She is also worried, because this lack of 
flexibility in their budget leaves them unprotected from 
catastrophic, unplanned events.  Two other interviewees 
suggested that increased consumption is an indicator that 
Tunisians have a shortage of places to invest their money, 
hence the propensity to spend for today.  The low rate of 
saving led one interviewee to say that this situation is 
indicative of a lack of hope in the future, lack of general 
investment, and a lack of trust that any business could 
succeed.  And, he added, with any serious success in an 
endeavor, one would surely encounter some form of negative 
intervention on the part of the GOT or the ruling business 
elites (Ref A). 
 
Loans and credit 
---------------- 
 
¶10.  Loans have become more widely used than in the past. 
The practice of taking out consumer loans started in Tunisia 
around 1990.  At one time, the GOT offered (essentially) 
subsidized car loans to bring small, affordable automobiles 
to the Tunisian middle class.  Then about four to five years 
ago, people began buying more fashionable new cars on credit, 
which bumped up the cost of loans.  One woman bought a new 
car, and has a loan for 7,000TD.  Her monthly salary is 
1,238TD, her husband works, but they now have a baby at home. 
 Through banks such as Banque Internationale Arabe de Tunisie 
(BIAT), Societe Tunisienne de Banque (STB) and others, 
Tunisians can get loans for big ticket items, such as cars, 
weddings, furniture and small appliances.  However, getting a 
bank loan is directly related to age and becomes more 
difficult as you approach retirement.  Banks become reluctant 
to grant loans from the age of 55 onwards.  Thus, some 
finance their purchases by borrowing from family and friends. 
 Interviewees say that the Tunisian rule of thumb is that it 
is acceptable to pay back a family loan in one to 
one-and-a-half years. 
 
¶11.  One man said that almost every family has at least one 
loan, either for a house, a car, furniture, or something 
else.  Interestingly, two women who seemed to have the most 
need for additional income said they had no loans.  Both are 
lower-income breadwinners with sizable families and make 
487TD per month.  One is a widow, and one has a husband who 
has only worked for three years since 1991.  One of these 
women is putting a son through private school.  The other 
woman, a widow, has two sick sons, aged 32 and 40, who are 
unable to work.  Both women believe that the "younger 
generation" wants too much without working or waiting for it. 
 
 
The practice of "Taqseet" or installment payments 
--------------------------------------------- ---- 
 
¶12.  Local retailer Carrefour and banks both offer "les 
traites," which are installment payment coupons.  These must 
be stamped by a bank or notarized to be accepted.  For 
example, to buy a TV, each month the customer pays an agreed 
amount, such as 50TD.  Every month s/he must take the coupon 
to the store and make the payment.  When first considering 
the purchase, s/he goes to the store, agrees on the number of 
payments and price per payment with the merchant, and takes 
 
 
these coupons to the local municipality to get them 
notarized.  The stamped coupons give the vendor the right to 
repossess the item, and the authority to collect on any 
outstanding debt, if necessary.  Examples of where a consumer 
might use these coupons are not limited to the larger 
hypermarkets.  Tunisians use them in local boutiques, and 
they are quite commonly used for furniture purchases. 
 
¶13.  At furniture chains, you can buy bedroom furniture with 
only 10-30 percent down, with the rest financed through 
installment payments.  A typical bedroom set can cost in the 
range of 2,000-10,000TD.  If you pay cash, you can get a 5-10 
percent discount off your purchase.  If you finance the 
purchase, you typically pay the retail price, plus anywhere 
from 5-30 percent in interest charges. 
 
¶14.  There are repercussions for people who don't pay back 
their loans.  Vendors repossess items and resell them to 
recoup losses.  Creditors can also take bad debtors to court 
to enforce payment, as long as the installment agreement was 
documented.  Vendors may also put a lien on property.  The 
local police maintain a list of bad debtors and routinely do 
spot checks at busy public places like Carrefour or bus 
stations to catch those who have tried to skip out on a debt. 
 If a debtor on the list gets stopped by police, they can be 
taken to jail and held until a family member comes and pays 
the debt.  The debtor spends the first night in jail, and 
next day, goes to court.  In court, either someone comes and 
pays the debt, or the debtor goes back to jail until the 
outstanding loan is paid. 
 
¶15.  It is also not uncommon to see debtors who cannot pay 
for a financed item sell it off privately after they have 
used the item for a period, and then use sale proceeds to pay 
back the loan.  Others sell goods immediately, after 
purchasing them on credit, as a creative financing mechanism. 
 In fact, there is a well-known store where people buy new 
items on credit in the store for retail price, and sell these 
new goods out in the front yard of the store at a discount 
for cash.  These impromptu vendors use this method as a 
desperate way to get a cash advance when they don't have a 
line of credit with a bank or family members. 
 
¶16.  One interviewee said "people are complaining that life 
is more expensive, but there is little action."  Another said 
"People are complaining about high prices, but people are 
getting more these days and waiting less time to have it." It 
is certainly true that many people are indeed able to 
purchase more things, because of the ability to have them now 
with credit. 
 
¶17.  COMMENT:  These everyday accounts are useful 
illustrations of the evolving economic problems many 
Tunisians face.  While the development of the budding credit 
industry is a good, practical indication of Tunisia's 
economic and commercial progress, many families have become 
seriously indebted, causing financial stress for families, 
and bad loans are a major banking challenge that could slow 
Tunisia's economic development, if reform is not continued 
and pursued with discipline.  END COMMENT. 
HUDSON