core sector communique

The Arab Spring, One Year On

By Christine Lagarde
Managing Director, International Monetary Fund 
Washington DC, December 6, 2011

As prepared for delivery

Good afternoon. It is an absolute delight to be here and to see so many old and new friends. I would like especially to thank His Excellency Mohammad Safadi, the Lebanese minister of finance, for his kind invitation to address you today.

And I would like to thank all the organizers—the Safadi Foundation; Stanford University’s Center on Democracy, Development, and the Rule of Law; the Center for International Private Enterprise, and—last but not least—our hosts today, the Woodrow Wilson Center.

This is my second time in a few short months giving a speech at the Wilson Center—I hope I do not wear out my welcome! But this time is different. When I was here in September, I talked about the challenges facing the global economy. Today, I will focus exclusively on the historic transformation taking place before our eyes in the Middle East and North Africa.

Let me talk about two specific things today.

• First, I will talk briefly about the general context of the Arab Spring, and where it stands one year later.
• Second, I will then address some specific economic challenges facing the region during this momentous period.

Context: Rejecting the Past, Defining the Future

Let me start with the context. As we all know, almost one year ago, everything changed for the people of the Middle East. The region embarked upon a historic transformation.

But at the time, few realized where this journey would lead. When Mohamed Bouazizi, the Tunisian street vendor, set himself on fire last year, who could have predicted that his tragic death would herald a whole new Middle East?

Who would have foreseen that this act of desperation against a violation of human dignity would ignite a flame that would eventually illuminate the entire region, toppling governments and leading to mass awakening of social consciousness?

This much is clear: The Arab Spring embodies the hopes, the dreams and aspirations of a people yearning for a better way of life. Yearning for greater freedom, for greater dignity, and for a more widespread and fairer distribution of economic opportunities and resources. Basic human yearnings.

Today, a year has passed, and the state of play remains uncertain. Spring has turned to autumn, and autumn to winter. People feel uneasy and grow impatient.

This is to be expected. Momentous changes of this sort—a new society in the making—are never smooth. They are almost always messy and complicated.

But still, I think it is fair to say that the setbacks have been bigger than expected. It has always been clear that each country must find its own path, and that the pace of change would vary by country, but few predicted the size of the setbacks or the intensity of the disruptions.

And here, I’m thinking especially of the deplorable loss of life in places like Libya, Syria, and Yemen. Such violence against civilians is always a blight on humanity. It pains me deeply to think about it.

And now we are moving into the most difficult period of all. We are in the middle of a delicate transition between “rejecting the past” and “defining the future”, a key psychological inflexion point.

“Yesterday is but today's memory, and tomorrow is today's dream,” wrote the great Lebanese poet, Khalil Gibran.

This is naturally a risky and uncertain period. It is a period when hard choices must be made, when post-revolutionary euphoria must give some way to practical concerns. It also doesn’t help that this is happening at a time of great turmoil in the global economy.

It will be important to manage this difficult transition in an orderly way. And here, I want to pay tribute especially to the people of Tunisia, who are going through a smooth and inclusive process of transition. Just as Tunisia provided the first spark of the Arab Spring, so now can it light the path forward for other countries in the region.

I remain ever hopeful. Although the journey might take some unpredictable twists and turns, and even prove perilous on occasion, the final destination is clear. The Arab Spring is still poised to unleash the potential of the Arab people. The potential of a better future for all. That’s what matters. And that’s what everyone must keep in mind.

Economic challenges

Let me turn now to my second point: how this ties into the economic challenges faced by the region.

We all learned some important lessons from the Arab Spring. While the top-line economic numbers—on growth, for example—often looked good, too many people were being left out.

And, speaking for the IMF, while we certainly warned about the ticking time bomb of high youth unemployment in the region, we did not fully anticipate the consequences of unequal access to opportunities. Let me be frank: we were not paying enough attention to how the fruits of economic growth were being shared.

It is now much clearer that more equal societies are associated with greater economic stability and more sustained growth.

While each country in the region must find its own path to change, the over-arching economic goals of the Arab Spring remain clear—higher growth, growth that creates more jobs, and growth that is shared equitably among all strands of society.

So how do we get there? How can we turn the dreams of the Arab Spring into reality?

At this delicate point in the transition, the risks are not only political, but also economic and financial.

We are already witnessing an economic slowdown across the oil-importing countries that is pushing up already-high unemployment and aggravating social tensions.

We must manage these risks carefully. In his context, I want to talk about two specific dimensions—macroeconomic stability and inclusive growth.

Macroeconomic stability

Let me first emphasize a very important point: macroeconomic and financial stability remain absolutely essential, core building blocks of any new society. Without this secure foundation, any efforts to respond to people’s aspirations will not be realized. Macroeconomic and financial stability must remain fundamental.

To date, governments have responded to social pressures by increasing subsidies, wages, and other spending to help lessen the hardship faced by ordinary people. This was needed for social cohesion in the short term.

But it does not come without cost. Fiscal deficits have widened, which raises concerns about sustainability. It pushes up interest rates, which makes it harder for the private sector to get credit to set up or expand businesses and start hiring people.

So across the region, governments need to move toward better and more sustainable fiscal policies. In particular, more targeted social protection systems would help free up funds for spending on areas like infrastructure, education, and health while laying the foundations for inclusive growth. This would be a break from the past when generalized subsidies were used to appease the population while allowing the privileged to benefit from unfair practices.

Inclusive growth

So macroeconomic stability is essential. But macroeconomic stability and inclusive growth can—and indeed must—go hand in hand.

And here, the government and the private sector must work in harmony. The private sector, including small and medium-sized enterprises, must take on a leading role, to boost investment, productivity, competitiveness—and create jobs.

But for this to happen, the government must provide an enabling environment. It should put in place modern and transparent institutions to encourage accountability and good governance and ensure fair and transparent rules of the game. It should slay, once and for all, the dragon of corruption.

The government must also lay the foundations of a modern and competitive economy by breaking down the vested interests and cozy networks of privilege that prevent the region from reaching its true economic potential. There is simply no other way to create the 50-70 million jobs needed for the people joining the labor force and to reduce unemployment over the next decade.

Again, to succeed, the debate needs to move beyond “what is wrong with the past” to “what is right for the future”.

Role of the international community

Of course, the region’s destiny lies ultimately with the region itself, but the international community also has a responsibility to help. It must listen to the hopeful voices and provide support including through financing and technical assistance.

The international community must also offer greater market access to countries in the region. If these countries are to modernize and become more competitive, they will need to be given the opportunity to trade more with the rest of the world. To create the needed jobs and inclusive growth, there is simply no other alternative.

The IMF too stands ready to help. We are working closely with our members in the region, and we are willing to walk the path with them. We are offering the best policy advice possible. We will provide financial help if requested.

And with our technical assistance, we are helping countries build better institutions for a better world. Some examples: We are helping Egypt make its tax system more equitable. We are helping Libya develop a modern system of government payments. We are helping Tunisia improve its financial sector. And we are helping Jordan with fuel subsidy reform.

Conclusion: A Beacon of Hope

Let me briefly wrap up. Amidst a darkening economic outlook and waning confidence, the Arab Spring still shines as a bright light and a beacon of hope, a symbol of what can be accomplished.

One year on, the region stands at a critical juncture. The transition is going through a rocky patch, and the challenges are substantial, but the light remains on. And the region, together with its international partners, must make sure that this light is never extinguished.

This is a region that stands at the center of human civilization. Names like Carthage and Alexandria and Damascus are forever etched in our collective consciousness. The time has come for the region to live up to its legacy.

Let me end with another quote from Khalil Gibran: “March on. Do not tarry. To go forward is to move toward perfection. March on, and fear not the thorns, or the sharp stones on life's path.”

I cannot top that.

Thank you very much.