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Political and Military Implications, International Obligations


By Eric Reeves, a professor at Smith College in Northampton, Massachusetts


December 8, 2012 (SSNA) -- Recent commentary on the purported "coup attempt" in Khartoum has been quite various, sometimes even fanciful, with little in the way of consensus about how serious the "coup" was or precisely who was truly involved. There seems to be just as little consensus about precisely how far planning had moved toward an actual attempt, how its timing may have been governed by President al-Bashir's health and control of power (he has throat cancer, according to multiple sources), and what the stance of the military is or will be on the occasion of a transition. Official comments from Khartoum are contradictory and show no commitment to provide an honest account. What can't be doubted is that the events, insofar as we can discern them, reveal growing domestic unhappiness with the current regime, which after 23 years in power has still failed to bring peace or broadening prosperity to Sudan. The public discontent of last June and July may now be coming to fruition.


Independent economists estimate an infation rate of 60% as of November 2012


But to date political commentary has generally failed to provide a comprehensive account of how current struggles in Khartoum take place in the context of an economy that is in free-fall. There is some acknowledgement of distress over high prices, shortages, and lack of employment; but there has been relatively little in the way of fuller assessments of how far advanced the economic collapse is—or what the consequences of such a collapse will be in shaping Sudan's political future. Any analysis of current political machinations and maneuvering will be meaningless without an understanding of how a series of critical choices—military and economic—have been forced on the regime as a whole. The choices are inevitably interrelated, and how they are made will define the future of greater Sudan.

 

Discussion of Khartoum's political elite often relies on a traditional division of the National Islamic Front/National Congress Party into "moderates" and "hardliners"; this is better cast, in my view, as a distinction between variously pragmatic elements within the regime who cohere in their views to a greater or lesser degree, depending on international pressures. The analytic task at hand is to capture how current economic circumstances will govern the survivalist political instincts that are common to all these ruthless men. The advantage of a focus on "pragmatism" is that it highlights how "unpragmatic" so many recent actions and decisions have been in the economic sphere, and how these decisions actually increase the threat to regime survival. These brutal men may control the press, the news media, the security forces and the army—at present. But the impending maelstrom of economic disarray will bring to bear pressures that many in the regime and the military clearly have not anticipated or do not fully understand.

 

An overview of factors precipitating the collapse of the Sudanese economy would include the following (see also a fine review of the situation by Armin Rosen in The Atlantic, "It's basically over," September 27, 2012):


[1] A recent assessment found that Sudan is the fourth most corrupt country in the world (only Afghanistan, North Korea, and Somalia rank lower); corruption eats at the heart of economic growth, derails rational capital expenditures, and breeds resentment. It has long been endemic in Sudan, and its current ranking reflects that fact.

 

[2] The IMF's most recent assessment has found that Sudan's is the worst-performing economy in the world (BusinessReport, December 9, 2012). This in itself is simply extraordinary for a country with so many natural resources, including vast tracts of arable land.

 

[3] The best barometer of the extent of economic collapse is the revised figure for negative growth (contraction) of the economy: the April 2012 prediction from the IMF was -7.3 percent for 2012; most recently the figure stands at -11.2 percent, a depression by some measures, strongly suggesting a continuing downward spiral.

 

[4] The most current (October) estimate of Sudan's rate of inflation is 45.3 percent, up from 41.6 percent in September, 22.5 percent in March, and 15 percent in June 2011. In fact, this figure is already dated by the weeks intervening between data collection and present prices—and certainly understates the rate of inflation for essential commodities such as food and fuel. The official year-on-year inflation rate for food is 48.6 percent; The Economist notes (December 1, 2012) that "the price of fool, Sudan’s traditional bean breakfast, has risen from $0.33 to $1.16.," over 300 percent. The inflation rate for fuel is just as high as that for food generally, with ripple effects throughout the economy.

 

Moreover, Yousif el-Mahdi, a Khartoum-based economist, estimated in September (2012) that the real overall inflation rate was closer to 65 percent—this when the official rate was still 42 percent. He is far from alone in believing that in the past, the actual inflation rate has been consistently understated; but when the bad news comes fully home, it will inevitably make those holding Sudanese pounds even less trusting of the currency.

 

In fact, Sudan is rapidly approaching the point at which hyper-inflation will govern economic calculations and transactions, sending the pound into free-fall as desperate bank depositors and others with cash holdings in pounds convert to a hard currency or valuable commodities (gold, silver, even food) at almost any exchange rate. Once hyper-inflation sets in, it is almost impossible to reverse expectations of yet more hyper-inflation, particularly if there are no resources with which to back the currency under assault. The cash economy in Sudan will grind to a halt. Here it seems appropriate to recall that former President Jaafer Nimieri was brought down rapidly in 1985 amidst protests generated largely by hyper-inflation.

 

It should also be borne in mind that Khartoum has leveraged its oil resources as much as possible, and owns only a very small percentage of the two oil development consortia operating in Sudan and South Sudan (in the form of Sudapet's 5 percent stake, which has been challenged by Juba). Sales of additional concession blocks have generated little income, and nothing has been held in reserve.

 

Gold exports have been much in Sudan news, but the quantities being talked about by the regime—and thus the hard currency purportedly to be received—have been greeted with considerable skepticism. Reports seem to come exclusively from the regime-controlled news media in Khartoum, and have an air of desperation about them. In any event, increased gold production alone cannot begin to reverse current trends in the near- or medium-term.

 

[5] The cutting of fuel subsidies from the budget—demanded by the IMF as a condition for debt relief—has been largely abandoned in the wake of Arab Spring-like demonstrations last summer; these expensive subsidies will again represent an enormous part of the non-military/security budget, even as the expense receives no honest reckoning in public comments by the regime. Yet budgetary realities have become ever more grim, as the Sudan Tribune notes (December 7, 2012):

 

"The Sudanese government tabled its draft 2013 budget before parliament this week which projects 25.2 billion Sudanese pounds (SDG) in revenues and 35.0 billion SDG in expenses leaving a deficit of 10 billion SDG ($1.5 billion) which equals 3.4% of the country’s Gross Domestic Product. The deficit will be financed up to 87% (7.6 billion SDG) from domestic sources including 2 billion SDG from the central bank."

 

But the central bank has no real money, only what it prints in the way of Sudanese pounds that are rapidly declining in value. As of December 2, 2012, $1.00 bought 6.5 pounds—a record low, and a further 3 percent decline from the previous week (the black market rate was about 5 pounds to the dollar early in the year, suggesting a decline of approximately 30 percent). The official exchange rate is approximately 4.4 pounds to the dollar.

 

And while the IMF continues to insist that Sudan should cut fuel subsidies further—beyond what was cut in June—the Fund acknowledges that to do so will incur public anger and more instability of the sort seen last June, July, and August.

 

[6] The reason for the continuing decline in the value of the pound is a lack of foreign exchange reserves, the direct consequence of having no oil export income. As a result, imports purchased with Sudanese pounds are not simply more expensive—in some case prohibitively so—but harder to obtain at all, given the lack of available foreign exchange currency. Food imports are hit particularly hard, as are businesses that depend on imported parts or services. Sudan imports some 400,000 tons of sugar annually (it is a key source of calories for many in the north); these imports will only grow more expensive, pushing the inflation rate for this particular commodity well above 50 percent.

 

Efforts to secure US$4 billion in foreign exchange deposits from rich Arab countries have largely failed, with the exception of Qatar, despite various claims by regime officials that large hard currency deposits have been made into the Central Bank of Sudan. While providing temporary relief from "black market" speculation against the Sudanese pound, the long-term effect of such dishonest claims about foreign currency infusions is to diminish further the regime's credibility about all matters financial and economic.

 

[7] The oil sector as a percentage of GDP has declined precipitously following Southern secession. Oil now provides only 20 – 25 percent of revenues going to the regime; and beyond this massive loss in revenues, the oil sector now accounts for only 3 – 5 percent of gross domestic product (GDP), down from about 15 percent, according to the IMF.

 

Oil production is also being consistently overstated by Khartoum in order to suggest that more foreign exchange will be received than is the case. The "Medium-Term Oil Market Report 2012" by the International Energy Agency (IEA) puts current production in Sudan at 70,000 barrels per day, rising to 90,000 bpd in 2014 and dropping back to 60,000 in 2017. And yet long-time Sudanese oil minister and NIF/NCP stalwart Awad al-Jaz claims that Sudan is currently producing 120,000 bpd, which may rise to 150,000 bpd by the end of 2012. Gross misrepresentation of data is nothing new for the regime, but such transparently motivated manipulation of key figures is a sign of just how desperate the economic crisis is, and how urgently Khartoum feels the need to be perceived as having or receiving more hard currency than is credible.

 

Notably, in its April 2012 semi-annual World Economic Outlook, the IMF changed the classification of Sudan: from an oil exporter to an oil importer, making nonsense of al-Jaz's claim.

 

[8] The agricultural sector, long neglected by the regime, cannot provide enough food to avoid substantial imports; disabled by cronyism and a lack of commitment over many years, the agricultural sector is collapsing along with the rest of the economy. Much of the arable land between the White and Blue Niles has silted and become unusable, even as a once enviable irrigation infrastructure has badly deteriorated. Large tracts of valuable farm land have been sold or leased to Arab and Asian concerns to provide food for their own domestic consumption. There is simply no strategic emphasis on self-sufficiency in food, even as Khartoum counts on the UN to provide Sudan with huge quantities of food every year. As Agence France-Presse reported earlier this year (February 27):

 

"'The economic situation is deteriorating further and further,' and the economy is in crisis, says University of Khartoum economist Mohamed Eljack Ahmed. [Of Khartoum's "rescue plan"] economists say the plan seems unworkable in the short term. Ahmed says agricultural infrastructure, once the country's economic mainstay, has collapsed and neither farmers nor industrialists have an incentive to operate."

 

[9] The NIF/NCP for years has survived in large measure because it controls the security services (often overlapping) and the Sudan Armed Forces (SAF); estimates of what percentage of the national budget is devoted to the security services and the army vary, but range as high as 70 percent, with "over 50 percent" the closest to a consensus figure; this makes finding spending cuts in non-military sectors of the budget extraordinarily difficult. Moreover, these military and security personnel are now being paid in Sudanese pounds that are rapidly loosing their purchasing power, and this will breed intense resentment, defections, and possibly participation in civilian insurrection.

 

[10] Resentment is also felt by those in the vast—and very expensive—patronage system that has provided the regime with political support. The patronage system has been key to regime survival. It was built-up during the early take-over of banks and the most lucrative parts of the Sudanese economy following the NIF coup of 1989, and then extended further by the rapid increase of oil revenues that began in 1999. Now the patronage system is simply unaffordable, and the disgruntled within it can no longer be counted on to provide political support when it is most needed.

 

[11] The demographics of the "Arab Spring" are the same in Sudan as they are in the rest of the Arab world, especially in the regions in and around Khartoum: there are a disproportionately large numbers of people under 30 years of age, many educated but with little prospect of employment commensurate with their education, or indeed any form of employment at all. They are especially vulnerable to economic hardship.

 

[12] Massive external debt—estimated by the IMF at US$43.7 billion in 2012—is on track to reach US$45.6 billion in 2013, again according to the IMF. This represents 83 percent of Sudan's 2011 GDP. Such debt—largely in the form of arrears accrued under the present regime—cannot be serviced by the present Sudanese economy, let alone repaid. It is a crushing burden on the economy, and yet Khartoum shows no sign of adhering to IMF recommendations for obtaining debt relief, Moreover, the regime's military actions throughout Sudan should work powerfully against debt relief among the Paris Club creditors who own most of this debt. Certainly it would be unconscionable to negotiate debt reduction with a regime that devotes so much of its budget to acquiring the means of civilian destruction—in Darfur, in South Kordofan and Blue Nile, and elsewhere.

 

Nonetheless, Minister of Finance Ali Mahmud Rasul declared in October that there is growing "international acceptance to write off Khartoum's … external debt." The efforts of Western, African, and Arab civil society should be to make debt relief under present circumstances thoroughly unacceptable for politicians in Washington, London, Berlin, and Paris.

 

Current Minister of Finance Ali Mahmud Rasul also declares, despite these grim realities, that "the 2013 budget shows that we have overcome the secession of South Sudan." But former Minister of Finance Abdel Rahim Hamdi—whatever his own role within the regime during the 1990s—felt compelled to speak out about the current extraordinary mismanagement of the economy. Sudan Tribune reports his broadest assessment: the current regime "is no longer able to manage the economy and lacks solutions to handle the crisis." Hamdi noted that "conflicting economic policies [have] led to soaring inflation levels and astronomical increases in prices. Speaking at the Islamic Fiqh Council, Hamdi pointed out that 77 percent of revenues goes to cover salaries and wages as well as federal aid to states." He was also scathing in his assessment of projected revenues, which the regime has consistently oversold in a ploy to keep the psychology of inflation from taking hold (e.g., in celebrating artificially high estimates of gold production, boasting of hard currency transfers from Arab countries that never materialize). Current Minister of Finance Rasul speaks to none of this.

 

For those not living in the world of self-serving mendacity from which regime pronouncements about economic development emerge, the truth is conspicuous: the economy is in a complete shambles, and hyper-inflation is relentlessly approaching. The brute economic realities outlined above cannot be talked away or cajoled into more palatable form. Indeed, if the current budget needs—including a substantial continuation of subsidies for fuel—are not met with real revenues, the regime will be compelled to turn on the printing presses and create an even more precipitous decline toward hyper-inflation. Continue Reading >>> Part 2

December 27, 2012 at 7:28 PM Flag Quote & Reply

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