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Economy, Morocco

A look in the rear-view mirror

Abdication of Moulay Hafid - Le Petit Journal illustré 25 août 1912

Abdication of Moulay Hafid – Le Petit Journal illustré 25 août 1912

I wrote an article on Morocco’s growing external debt for the Majalla Magazine. You can read it here or continue in this post.

The former king Hassan II of Morocco used to say he was lucky to be the leader of a very ancient country with a rich and long history. Indeed, according to the monarch, each time he faced a tough decision, he could take the time and look in the rear-view mirror of Morocco’s history to make the right choice. This last month, the IMF executive Board completed the second review of Morocco’s performance under an economic program supported by a two year Precautionary Liquidity Line (PLL) arrangement. The access under the arrangement in the first year is equivalent to about 3.6 billion USD, rising in the second year to about 6.2 billion USD. Morocco has long been one of the “good students” regularly praised by the International Monetary Fund. Since the implementation of a harsh structural adjustment plan in the 1980s, the kingdom has regularly called upon the international donor organization to support its economy and development plans. With the global crisis and the drying up of foreign investments and remittances from Moroccan workers in Europe, it quickly turned to its former bogeyman for urgently needed cash. These contracted loans (from the IMF but also other friendly countries) made the country’s external debt reach a record high of 216 billion MAD (roughly 25 billion USD). This is a 3.9 billion MAD increase from the end of the 2012 year.

Morocco's public debt (charts from La Vie éco)

Morocco’s public debt (charts from La Vie éco)

The current islamist government through its budget minister, defended the recourse to indebtedness by pointing out that the external debt represent only 25% of the country’s GDP and that these loans are financing critical infrastructure projects like roads, railways, ports and airports that will ultimately generate strong amounts of cash and thus facilitate a quick reimbursement. Nevertheless, the general trend and the growing recourse to debt remain very much disturbing and Morocco’s modern history provides us with several warning signs when it comes to external debt and the international constraints linked to it. If ones take the time to look in the rear-view mirror of History, there is indeed a troubling symmetry between the evolutions of Morocco during the periods stretching from 1856 to 1912 and the signing of the treaty of Fez instituting the French Protectorate over the country and from 1956 and the obtaining of full independence to 2012. In 1856, Morocco under the reign of Moulay Abd Al-Rahmane, just registered a crushing defeat at the battle of Isly 8 years ago at the hand of the French army. The 1844 Franco-Moroccan war was the direct consequence of Moroccan support for the Algerian resistance against French colonization. The defeat brought to light the weakness of the Moroccan state and quickly draw the interests of European imperial powers. In 1856, in a bid to pay the French war reparations, Morocco agreed to open up to European trade and signed a free trade agreement with Great Britain. The agreement provided that British trade companies and British trade operators in Morocco were exempted from any taxes and were given preferential treatments and tariffs. This put Morocco in a position of weakness. Quickly the agreement was extended to Moroccan nationals working as intermediaries for British firms. They were also exempted from any tax and were under the judiciary protection of the British consulate. Thus, the Moroccan treasury saw a considerable part of its revenues melt away. Another war and defeat against Spain in 1860 forced the Moroccan authorities to seek new accommodations to pay off a rapidly increasing debt. New British loans were contracted. Custom revenues acted as a warrant for these loans. In the coming years leading to the 20th century, economic underperformance and mismanagement saw Morocco increasingly tapping into the debt pool. In 1904, a new loan contracted from BNP Paribas was conditioned on the strict implementation of a reform program and more importantly on allowing officials from the bank to control customs and port traffic across the country. Morocco was gradually losing its sovereignty and the country was increasingly rocked by internal rebellions, foreign invasions… The 1906 Algesiras conference couldn’t change anything and allowed the great powers to coordinate regarding Morocco. In 1912, the Sultan Moulay Hafid facing an uprising and besieged in his capital, was forced to abdicate and sign the treaty of Fez consecrating the division of the country under the French and Spanish Protectorates. The 1956-1980 period saw the newly independent Moroccan state try to build a development model through the export of agricultural products, tourism and a nascent textile industry. Nevertheless, a long drought, the increasing cost of the war in Western Sahara and the second oil shock forced the Moroccan government to reconsider its path at the end of the 1970s. As Milton Friedman’s deregulation theories swept across the world, Morocco’s embarked on the neo-liberal ship at the turn of the 1980s by implementing an IMF-backed structural adjustment plan. The long-term effects of the plan are in some part positive as they allowed the Moroccan economy to begin to shake off its monopolistic and quasi feudal characteristics but the involvement of the IMF meant a gradual disengagement of the state regarding the steering of the economy. Indeed, economic policies from the 1990s inwards were reduced to successive budget monitoring to abide by IMF rules. The parallel with the situation at the turn of the 20th century in regards to sovereignty and increasing international constraints is not farfetched. Morocco has a very limited flexibility and the increasing reliance on external debt during the first decade of the 21st century won’t improve the situation. The one who ignores his past is condemned to relive it. External Debt is a serious and potentially dangerous subject that shouldn’t be shrugged of considering the current economic context. Morocco has just to take a moment and look at its rear-view mirrors…

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