IRI Board Member Olin Wethington Looks at the Economic Challenges Tunisia Must Address

It’s the Economy, Tunisia
Project Syndicate
By Olin L. Wethington

TUNIS – On December 21, Tunisia completed a remarkable democratic transfer of power, with the election of Beji Caid Essebsi, the leader of the secular political party Nidaa Tounes (Call of Tunisia). As with the parliamentary election in October, the process of choosing a president was, for the most part, fair and free of violence.

For the moment, Tunisia is the only Arab Spring country that appears to be on a path to genuine democratic governance. Since the ouster of President Zine el-Abidine Ben Ali in 2011, the country has endured pressures from Islamic radicals, a deterioration of its economy, and a chaotic transitional period. But it has also written and adopted a new constitution structured to encourage the separation and balance of powers, and it seems on track to pull off a successful change in government.

Tunisia is relatively homogeneous ethnically and lacks sharp sectarian divisions; nonetheless, owing partly to its porous borders with Algeria and Libya, the specter of violence is always present. Indeed, the issue of security dominated both the parliamentary and presidential elections, with all sides claiming to be the best qualified to counter extremism. Lurking in the background of the presidential election was fear in some quarters that a victory by Nidaa Tounes, which won a plurality in parliament, might mean a return to authoritarian rule.

Given concerns about security and the fate of the democratic transition, economic issues were essentially put on hold in both elections. Now it is time for Tunisia’s leaders to put the economy at the top of their agenda.

In the coming weeks, Nidaa Tounes, which won 86 of the parliament’s 217 seats, will face a difficult decision as it attempts to form a government. The party’s leaders could strike a power-sharing arrangement with the moderate Islamist Ennahda party, which finished second, with 69 seats, and risk a stalemate over policy. Or they could piece together a working majority from smaller political parties and try to govern in an unstable coalition beset by deep policy disagreements.

Whatever Nidaa Tounes decides, the new government will have to act quickly. The country’s moribund economy has fueled public disillusionment. Unemployment is falling, but it remains high, at more than 15% – and higher still among the young. The fiscal and current-account deficits are widening, foreign investment is weak, inflation is rising, and corruption remains rampant. Distrust of political parties and disappointment in their ability to govern is widespread, as evidenced by low voter turnout in the recent elections. Tunisia’s political achievements could rapidly be reversed if the new government cannot quickly revive the economy and improve citizens’ daily lives.

Nidaa Tounes must take the lead in forging support from all major parties for a national-unity agenda on economic reforms. In its first 30 days, the new National Assembly should publicly announce a consensus vision for economic growth and job creation. A broad multi-party commitment would likely help discipline subsequent legislative action and assist in generating the necessary public support.

There is already broad agreement among the major political parties on the necessary priorities: bringing public spending under control, encouraging private-sector growth and employment, promoting regional development and social inclusion, and investing in essential infrastructure. In the previous assembly, work stalled on several significant pieces of legislation, including laws on public-private partnerships, foreign investment, and banking reform. The unity agenda should include early passage of these bills.

Tunisia’s politicians will be able to draw on existing work. The program developed by acting Prime Minister Mehdi Jomaa in September 2014 deserves serious consideration. The International Monetary Fund Stand-By Arrangement of 2013 provides a similar starting point. To maintain support from the IMF when its current program ends in summer 2015, Tunisia will need to negotiate new commitments. A consensus reform package could serve as a credible point of departure.

In the meantime, Western democracies must do their part and sustain engagement with Tunisia. The 2011 Deauville Partnership with Arab Countries in Transition, in which G-8 members pledged to support Arab countries’ efforts to move toward “free, democratic, and tolerant societies,” has a role to play. This mechanism may be unlikely to mobilize significant new financing, but participating countries can provide valuable political and technical support on structural reform, regional integration, and private-sector development.

Provided the security threats are contained, an early consensus within Tunisia on a credible economic agenda would open the taps of the largest potential source of capital: international financial markets. The incoming funds, and the subsequent growth and job creation, would undergird the consolidation of democracy – and thus help cement the impressive gains that Tunisia has made so far.

Olin L. Wethington, former US Assistant Secretary of the Treasury for International Affairs, heads a business advisory firm focused on emerging markets.

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