Edited by Robert O’Connor
The American Crisis and Its Implications for the Jordanian Economy
Published in AlRai
(Jordan) on 7 October 2013
by Salam Adraowi (link to original)
Some may be asking themselves if the current partial American government shutdown along with what is transpiring in the American economy is having any effect on their current presidential administration. They may also be wondering if there is any possible effect on the Jordanian economy resulting from the approaching American debt default if the world’s largest economy continues on its present course.
In fact there are three facets of the economic relationship between Jordan and America that relate to the effects of the economic situation that is presently vexing Washington. They are Eurodollar bonds, American aid, and the U.S. Treasury bonds that the Central Bank of Jordan purchased a few years ago.
Regarding the Eurodollar bonds, the Jordanian government is currently intending to offer them on the 14th of this month at a total value between $1.2 and $1.5 billion, and having the bonds cosigned by the American congress. This means if the situation between the administration and Congress remains as it is now, lacking even the basis for a solution, then it would behoove the Jordanian minister of finance to think very seriously about postponing the bond offering to world markets.
Because those bonds will have an American guarantee, the absence of a solution to their economic problem will result in reluctance on the part of international banks to participate in those bonds. The degree of risk will rise as well. In turn, that risk could contribute to a rise in the bonds’ interest rate, adding new burdens that would evaporate the economic viability of the scheme — the entirety of which is based mainly on the idea of low interest rates.
As for the foreign aid that the United States presents to the kingdom to the tune of $650 million annually? It was appropriated before the crisis and has already been provided for in approved congressional budgets. Additionally, the aid's future is secure because there is a special section in which its provision is found in the agreement between the White House and Congress. It has effectively been law for months now. There is even a draft of a decision with that legal framework to increase American aid to the kingdom to $1 billion effective 2014.
While it is true that the Jordanian government holds U.S. Treasury bonds, those bonds have an aggregate value of around 887.5 million dinars. They originated as international bonds that were offered by the American government in 2010 at a value of $750 million, where they are set to mature in the year 2015 and pay out in dollars. It is a debt held by the Jordanian government and there is nothing to prevent the commitment of the American government to the prices already agreed upon.
There are some who see that there are Jordanian deposits in the American market, and those deposits are affiliated with the Central Bank and the total amount is unknown. Most central banks follow this procedure to diversify the sources of their investments, in addition to taking advantage of the stability and return on investment in the markets of certain countries, including the market of the United States. There is no risk to be found here unless the American economy collapses entirely. Were that to happen, Jordan would not be the only country affected. Such a situation would be incredibly difficult for the entire world economy. But the experience of the past will prove useful and, despite the current intransigence between Congress and the administration, it will end when something leads to a breakthrough, just as it happened 17 years ago.
In fact there are three facets of the economic relationship between Jordan and America that relate to the effects of the economic situation that is presently vexing Washington. They are Eurodollar bonds, American aid, and the U.S. Treasury bonds that the Central Bank of Jordan purchased a few years ago.
Regarding the Eurodollar bonds, the Jordanian government is currently intending to offer them on the 14th of this month at a total value between $1.2 and $1.5 billion, and having the bonds cosigned by the American congress. This means if the situation between the administration and Congress remains as it is now, lacking even the basis for a solution, then it would behoove the Jordanian minister of finance to think very seriously about postponing the bond offering to world markets.
Because those bonds will have an American guarantee, the absence of a solution to their economic problem will result in reluctance on the part of international banks to participate in those bonds. The degree of risk will rise as well. In turn, that risk could contribute to a rise in the bonds’ interest rate, adding new burdens that would evaporate the economic viability of the scheme — the entirety of which is based mainly on the idea of low interest rates.
As for the foreign aid that the United States presents to the kingdom to the tune of $650 million annually? It was appropriated before the crisis and has already been provided for in approved congressional budgets. Additionally, the aid's future is secure because there is a special section in which its provision is found in the agreement between the White House and Congress. It has effectively been law for months now. There is even a draft of a decision with that legal framework to increase American aid to the kingdom to $1 billion effective 2014.
While it is true that the Jordanian government holds U.S. Treasury bonds, those bonds have an aggregate value of around 887.5 million dinars. They originated as international bonds that were offered by the American government in 2010 at a value of $750 million, where they are set to mature in the year 2015 and pay out in dollars. It is a debt held by the Jordanian government and there is nothing to prevent the commitment of the American government to the prices already agreed upon.
There are some who see that there are Jordanian deposits in the American market, and those deposits are affiliated with the Central Bank and the total amount is unknown. Most central banks follow this procedure to diversify the sources of their investments, in addition to taking advantage of the stability and return on investment in the markets of certain countries, including the market of the United States. There is no risk to be found here unless the American economy collapses entirely. Were that to happen, Jordan would not be the only country affected. Such a situation would be incredibly difficult for the entire world economy. But the experience of the past will prove useful and, despite the current intransigence between Congress and the administration, it will end when something leads to a breakthrough, just as it happened 17 years ago.