VZCZCXRO7577
RR RUEHDE RUEHDIR
DE RUEHAM #0136/01 0151042
ZNR UUUUU ZZH
R 151042Z JAN 09
FM AMEMBASSY AMMAN
TO RUEHC/SECSTATE WASHDC 4196
INFO RUEHAD/AMEMBASSY ABU DHABI 1275
RUEHLB/AMEMBASSY BEIRUT 2968
RUEHEG/AMEMBASSY CAIRO 3876
RUEHDM/AMEMBASSY DAMASCUS 4045
RUEHJM/AMCONSUL JERUSALEM 5301
RUEHTV/AMEMBASSY TEL AVIV 1482
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 AMMAN 000136 
 
SIPDIS 
 
STATE FOR NEA/ELA AND EEB/IFD/OMA AND EEB/EPPD 
TREASURY FOR SETH BLEIWEIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV EAID KTEX JO
SUBJECT: FINANCIAL CRISIS HITS JORDAN IN SPITE OF DOMESTIC FISCAL 
CONSERVATISM 
 
REFS: A) 08 STATE 134459 
       B) 08 AMMAN 3267 
       C) 08 AMMAN 3122 
       D) 08 AMMAN 2928 
 
¶1. (SBU) Summary: Although Jordan's conservative banking and 
mortgage practices have partially protected the country from the 
international financial crisis, Jordan's economy is still suffering 
from a credit crunch; falling real estate prices and cancelled 
development projects; a general business slowdown; and a stock 
market that has lost 37% of its market capitalization.  For most 
Jordanians, inflation remains their top economic concern.  Jordanian 
officials are watching the Gulf's financial challenges closely, in 
fear that the problems in Dubai and elsewhere will result in 
decreased foreign aid and investment, lost jobs and remittances from 
Jordanians working in the Gulf, and a slowdown in GDP growth.  Some 
optimists point out that Jordan could benefit from lower fuel costs 
and that Gulf businesses may redirect investments from the U.S. and 
Europe to Jordan.  End Summary. 
 
Worldwide Crisis Creates Local Credit Crunch 
-------------------------------------------- 
 
¶2. (SBU) Across the public and private sector, interlocutors praised 
the conservative policies of the Central Bank of Jordan (CBJ) with 
keeping Jordan partially protected from the worldwide financial 
crisis.  CBJ has long restricted the amount and risk-level of 
mortgages, and no sub-prime mortgage equivalent exists in Jordan. 
Issa Gammoh, Deputy CEO of the Jordan Investment Board, said that 
Jordan was now reaping the benefits of financially-sound banks and 
strong laws and regulations that have held up to external pressure. 
Non-performing loans total just 4% of all money lent, and mortgages 
have a very low default rate.  CBJ Deputy Governor Kholoud Saqqaf 
said that CBJ has met with all banks several times since the crisis 
began to encourage the granting of credit to qualified borrowers, 
and the Prime Minister has guaranteed all deposits to unlimited 
amounts in Jordanian banks for 2009. 
 
¶3. (SBU) In spite of strong banking practices, Jordan is now 
experiencing a serious credit crunch.  Executive Privatization 
Commission (EPC) consultant Salem Ghawi said that banks have been 
adding restrictions and become even more conservative.  He said 
financing of large projects is becoming very difficult, and EPC is 
working with the World Bank to set up a guarantee fund to encourage 
investments.  Gammoh said that large investors have still been able 
to find banking partners if they have collateral.  Capital 
Investments General Manager Samer Sunnoqrot noted however that 
increasingly 100% cash collateral for loans is necessary, in cases 
where previously just 10-20% was required.  Several small 
businessmen, including food traders and farmers, have complained 
that 100% collateral has made business operations difficult but that 
such credit is needed to run and expand their businesses.  Sunnoqrot 
predicted that in 2009, banks will remain selective in their credit 
and opined that by tightening credit, they have made the financial 
situation worse.  Although CBJ lowered rates by 1% in November, 
Sunnoqrot opined that rates must be lowered by at least another 1%. 
He cited a recent Federal Reserve decrease with no corresponding 
change in CBJ policies as indicative of the excessive conservatism. 
 
Real Estate Hurting 
------------------- 
 
¶4. (SBU) Although sales remained strong in the first three quarters 
of 2008, the real estate sector is now reported to be among the 
hardest hit by the crisis and tightened credit.  Abu Judom Real 
Estate Company President David Abu Judom estimated that most 
commercial prices have recently fallen 20%.  He said two large 
office buildings planned for Amman's business district have been 
cancelled, as has a large housing development in the Dead Sea.  He 
said commercial property owners are reluctant to lower prices but 
speculated that their own bank financing and repayment requirements 
will necessitate such changes.  Foursan Private Equity Partner 
Nashat Masri predicted many more project cancellations.  Local press 
reported January 7 residential housing prices fell 10% in the fourth 
quarter of 2008 and that further declines are expected with the 
current weak demand.  During the week of January 18, the Ministry of 
Labor, the Ministry of Finance, and the private real estate sector 
plan to submit a joint proposal to the Council of Ministers seeking 
support and loans for real estate projects that have been frozen by 
the credit crisis. 
 
AMMAN 00000136  002 OF 003 
 
 
 
Businesses Brace for Rough 2009 
------------------------------- 
 
¶5. (SBU) Although business sales were generally up in 2008 over 
2007, most business owners across industries are bracing for a 
difficult year in 2009.  The tourism sector, which saw a significant 
spike from Europe in 2008, is predicting significant declines in 
¶2009.  One owner of an inbound tour company said that his sales are 
down 25% and that he continues to receive cancellations, which he 
attributes to the worldwide financial crisis.  Jordan estimates that 
its garment exports to the U.S. declined 15% in the first ten months 
of 2008 compared to the same period in 2007 and employment in the 
sector has fallen by 13% (ref B).  Vehicle sales are reported to 
have fallen 50%.  At least one businessman, however, Bassam Mohsen, 
Commercial Vice President for Jordan Aviation, a private charter 
company, said that his company has actually benefited by having cash 
on-hand during the worldwide crisis and has been able to purchase 
used aircraft and spare parts at low prices and has recruited pilots 
laid-off by other companies. 
 
Stock Market Falls 
------------------ 
 
¶6. (SBU) In June 2008 before the crisis, the Amman Stock Exchange's 
(ASE) market capitalization peaked at $57 billion based on growth in 
potash and phosphate companies.  The ASE has since fallen 37% to 
$35.8 billion, which several businessmen noted is less than 
comparable Gulf exchanges.  The ASE is dominated by its financial 
services sector and Saqqaf said that the fall in market 
capitalization is unrelated to bank performance and that the 
sector's third quarter fundamentals were strong.  Sunnoqrot 
explained that while much of the decline can be attributed to the 
worldwide retreat from stocks, some of the pullout was also related 
to fears created by the domestic pyramid scandal that was uncovered 
in the fall of 2008 (ref D). 
 
Inflation Remains the Top Concern of Most Jordanians 
--------------------------------------------- ------ 
 
¶7. (SBU) While the real estate and stock market declines have 
primarily hurt affluent Jordanians, average Jordanians continue to 
be most affected by Jordan's inflation.  After suffering through 
inflation that peaked at 19% in July 2008, Jordanians have gotten 
some post-crisis price relief with falling world fuel prices. 
Jordan's consumer price index, after rising for 15 straight months, 
fell slightly in October, November, and December.  The inflation 
rate for 2008 averaged 14.9% and 2009 inflation is projected at 6%. 
 
 
Watching Dubai Anxiously and Fearing the Worst 
--------------------------------------------- - 
 
¶8. (SBU) Jordanian officials and businessmen are paying close 
attention to the economic situation in the Gulf, especially Dubai, 
fearing dire consequences for Jordanian employment, investment, and 
aid.  Saqqaf explained that Jordan's falling unemployment rates, 
from a recent high of 15.4% in 2006 to 12% at the end of 2008, are a 
result of increased Gulf hiring, rather than domestic job creation. 
She feared that the Gulf's slowing economy will result in job loss 
and will sharply reduce its ability to absorb future Jordanian 
workers.  Abu Judom said that 20,000 Jordanians working in Dubai 
have already lost their jobs.  These layoffs are particularly 
painful since remittances from an estimated 300,000 Jordanians 
working abroad totaled $3 billion in the first 8 months of 2008, 
equaling 20% of GDP and larger than any industry in Jordan. 
 
¶9. (SBU) Officials also expressed fear that tight government budgets 
and falling oil prices could reduce foreign aid to Jordan, 
especially from Saudi Arabia which donated about $500 million in 
cash and oil in 2008.  Similarly, businessmen say that low oil 
prices will also reduce investment in Jordan, since the majority of 
investment has been from Gulf states' petrodollars. 
 
¶10. (SBU) Conversely, some officials and businessmen see a potential 
silver lining in the Gulf economic crisis.  Among the potential 
benefits named is possible growth in foreign direct investment to 
Jordan as Gulf investors withdraw funds from Europe and North 
America.  In November, JIB went to Qatar to encourage just such 
investment redirection (ref C).  Several interlocutors believe that 
 
AMMAN 00000136  003 OF 003 
 
 
Jordan has comparative advantages of close proximity to the Gulf and 
a good reputation based on its highly-educated and respected 
expatriate workforce. 
 
Recent Reporting on Financial Crisis 
------------------------------------ 
 
08 Amman 3267 Jordan Garment Factories Face Declining Sales and 
Negotiate for Government Assistance 
 
08 Amman 3173 In Spite of Government Initiatives Jordanians Are 
Economically Worse Off 
 
08 Amman 2982 Jordan's Budget Deficit Grows with Bonuses and 
Development Projects 
 
08 Amman 2928 Pyramid Scheme Highlights Past Regulatory Failures and 
Costs Citizens Millions 
 
08 Amman 2696 Despite Slowdown in Cement Demand, Jordan's Production 
Capacity Set to Expand Significantly 
 
08 Amman 2669 Second Budget Supplement Needed for Social Safety Net 
 
 
08 Amman 2654 Jordan's Trade Deficit Doubles during First Half of 
2008; FTA Negotiations Concluded with Canada 
 
08 Amman 2369 Jordan's Inflation Rate for July 2008 Peaks at 19 
Percent Higher than 2007 Level 
 
08 Amman 2366 Jordanian Request for Assistance to Address Food 
Security Needs 
 
 
Visit Amman's Classified Website at 
http://www.state.sgov.gov/p/nea/amman 
 
BEECROFT