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High oil prices cause hard time for Mideast's middle class

Houston Chronicle
Date: Mon 02/25/2008

Rise in costs of food, basic goods squeezing many

By ROBERT F. WORTH
New York Times

AMMAN, JORDAN - Even as it enriches Arab rulers, the recent oil-price boom is helping to fuel 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 Persian Gulf.

Here in Jordan, the cost of maintaining fuel subsidies amid the surge in prices forced the government to remove almost all the subsidies this month, sending 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.

Dramatic inflation

In Saudi Arabia, where inflation had been virtually zero for a decade, it recently 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 inflation has many causes, from rising global demand for commodities to the monetary constraints of currencies pegged to the weakening American dollar. But one cause is the skyrocketing price of oil itself, which has quadrupled since 2002. It is helping push many ordinary people toward poverty.

"Now we have to choose: We either eat or stay warm. We can't do both," said Abdul Rahman Abdul Raheem, who works at a clothing shop in a mall in Amman.

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 ($423) a month by 50 dinars ($70). For those earning more than 300 dinars, the raise was 45 dinars, or $64.

Corruption theory

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 have 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, 34 people were sentenced to prison Wednesday for participating in riots over food prices, the Moroccan state news service reported.

Inflation was also 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 money they send home.

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 T. Abed, the former governor of the Palestine Monetary Authority and a director at the Institute of International Finance, an organization 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.

"For many basic products, we don't have free market prices, we have monopoly prices," said Samer Tawil, a former minister of national economy in Jordan. "Oil, cement, rice, meat, sugar: These are all imported almost exclusively by one importer each here. Corruption is one thing when it's about building a road, but when it affects my food, that's different."


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Added: Feb-26-2008 
By: e4bannan
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Tags: middle east, middle class, oil
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