BANKING
Most of the commercial banks were originally branches of foreign banks
which have now been reconstituted under Moroccan law, with half of the
banks now incorporated in Morocco. Foreign bank presence is still low
and there are fourteen commercial banks, and Morocco has several
development banks and specialized credit institutions (Price Waterhouse,
chp 3). A new Central Bank, the Banque de Maroc (Bank al-Magrib) was
established in 1959 and incorporates the pre-independence Banque d'Etat
du Maroc, (EMM, p22) and at this point it becomes a public enterprise
out of the private hands of the royal family (Henry, p143). The Central
Bank has wide discretionary powers and commercial banks thus cooperate
with it, exercising their controls by directives rather than by definite
rules and regulations (EMM, p23). Reserve requirements for the
commercial banks is 20%. A glance at the largest banks reveals little
if any foreign ownership, and the next four have about half foreign
ownership (Henry, Table 5.1, p152).
The Moroccan economy is still most closely related to the German model
of capitalism (p90) and this is reflected in the government-business
relationship. Banking ownership is in private hands, but the banks’
activities and investments reflect the government’s preference in
developing certain sectors, similar to how First Israeli Prime Minister
David Ben-Gurion promoted some sectors, linked to Histradrut, over
others. Even after 1991 when the Moroccan government lifted credit
ceilings and most controls on interest rates, its banking system
oligopoly was strengthened and became even less transparent in terms of
publicizing its balance sheets and income statements (p142). The banks
in Morocco have generally only been moderately independent of
government, an indicator of bank strength as discussed by Sylvia
Maxfield. The Moroccan government has fixed prices on basic commodities
and has helped push through price stabilization measures in conjunction
with the IMF and the World Bank. Regarding interest rate control,
another indicator of Maxfield’s, the Moroccan government did not allow
the rates to be set by market forces until recently. This illustrates
the government’s hesitance to fully liberalize its banking industry,
indicating a weaker banking system as defined by Maxfield.
In Morocco, banks have traditionally acted as agents of credit
activism, and with the country's huge debt, it was uneasy about
replacing its direct controls of credit allocation with the indirect
control of the money market as the IMF wanted. The government in 1991
instead removed restrictions on the quantities of credit each bank could
allocate. This was designed to increase competition within the banking
system, but instead caused it to become even more concentrated. The top
eight banks continued with their trend of enlarging their market shares
at the expense of the other six (p58). When the credit
restrictions were lifted, interest rates rose but sight deposits were
more popular than the higher interest rate time deposits. Banks did not
advertise interest rates on the time deposits, especially since they
made easier money on the other deposits.
Considering Michael Loriaux's suggestion that abandonment of
credit activism is influenced by either domestic market and political
pressures or external pressures, it is evident that the second
hypothesis neatly fits Morocco's situation. The external pressure comes
directly from the IMF, though, and not as a result of policy shifts in
economic trendsetters such as the United States. Much of the Middle
East and North Africa functions somewhat independently of the global
economic scene since they do not operate on the ame level as much of the
rest of the industrialized world economies. Since the IMF guidelines
limited credit expansion measures, financial reform is often choppy and
unevenly
distributed (p59). The behavior of the banks to this situation after
1991 has generally been the maintenance of the opaque dealings between
government and business, except maybe where the Moroccan Wafabank is
concerned. The reform ended up not affecting this relationship
substantially, but instead "reinforced the oligopoly and the political
order that sustains it" (p135).
With the abolition of the Moroccanization decree (which benefited the
burgeoisie and the expansion of the public sector) in January 1990,
there is now no limit on the amount of capital that can be held by
foreigners. Morocco was still rejected by the EU for membership in the
late1980’s though (Price Waterhouse, chp2). Morocco has actually opened
up its financial markets with no particular restrictions for foreigners
for the Casablanca stock exchange, and no adverse or special treatment
for them in the local financing markets. Foreigners can invest in
private and other companies without restriction. There is also a free
trade zone at the port in Tangier into which items may be imported and
exported duty free. Morocco is a member of the Arab-Magreb Union and a
signatory of the GATT, and the latter hinders Morocco's ability to
impose customs barriers or other restrictions to free trade. The country
is divided into four Zones, each differing in the type of incentives
used to attract foreign and domestic investment (PW, chps 4 & 7).
These zones and their incentives seem to conform to a pattern of
government patronage of the businesses and interests in these zones.
This will be addressed more fully in the final paper.
POLITICAL SITUATION
After the death of King Mohamed V in 1961, his son Hassan became King
and Prime Minister. Hassan also designated himself as the Ministers of
Agriculture, Finance and Interior (Campbell, p238), consolidating
executive and economic power in one person. Today he is not Prime
Minister, but he does appoint this position. "After independence, a
basically ‘liberal’ economic strategy was adopted. Instead of
undertaking structural reforms, the government concentrated on
infrastructural development to provide the basic preconditions for
private capital investment and economic growth” (p236). The new
government was strongly influenced by leftist elements, and among its
objectives were the reform of the state apparatus and the
democratization and Moroccanization of society. The King and
conservatives were against this as it threatened their political
hegemony, abruptly demonstrated by the victories of the very left wing
party, the UNFP, formed out of the more socialist Istiqlal party, in the
1960 local elections (p237). It is not possible to speak of Morocco as
leaning toward democracy, even a monarchical one in which people have a
say in political life, without the threat of government repression.
With King Hassan’s accession, the trend was set for increased
governmental abuse of power toward opposition groups, and its tendency
to direct aid and resources to sectors affiliated with the government.
Reacting to high unemployment and poor economic performance, there were
massive demonstrations, which led to the 1965 state of emergency
(Campbell, p 241). Student unrest continued in 1970-1973 and there were
more strikes in 1978-1979. The 1980's saw the worst strikes in June
1981, these due to price increases in basic commodities, in which six
hundred people were killed. In December 1983, the first year of the
Moroccan debt crisis, four hundred died and nine thousand were arrested
in popular demonstrations. There were more popular protests throughout
1984-86. In the last decade, Morocco's population has increased faster
than the number of jobs available in urban areas, and a December 1990
riot in Fez was a response to this situation (Morrisson, p 17). The only
organized groups capable of effective protest are modern sector workers
and civil servants because they represent a large proportion of the
working population in large cities. Some of them control activities
vital to economy and some belong to trade unions. There is not a strong
unity among people of the lower economic strata because of racial and
social divisions. And some groups, like mid-sized landowners, have
strong government ties and would not bite the hand that feeds them, so
to speak, by engaging in or initiating protests (Azam, p85).
The earlier periods of protest were generally a reaction against
restrictive political life, and they were later characterized by
dissatisfaction with the increased unemployment and high prices on basic
food items. During the five year plan period of 1973-77, food prices
rose faster than wages. Evaluating the 1973-77 period reveals that
poorest and least developed regions received much less money than
wealthy areas (Campbell, p243). Poor people cannot consume much and
therefore contribute less money to the economy, except when purchasing
through the informal economy. By essentially restricting their ability
to participate in the formal economy, either through employment or
purchasing, the state decreases its ability to collect revenues. By
1977, Morocco was seriously in debt, largely due to substantial foreign
borrowing of the last five years (p245). A 1978-1981 plan was also
heavily concentrated on the already wealthy and industrial areas, and
there were more riots in 1978-79. Recognizing that the people needed
pacification, the government increased the minimum wage for the
agricultural and industrial sectors.
THE INFORMAL SECTOR
The informal sector is a long-term component of the Morocccan economy
and Mohamed Salahdine, of the University of Fes, sees the informal
sector "as a full, legitimate, and crucial partner in the development of
the Moroccan economy” (p17). The two sectors briefly discussed here are
the transportation and construction industries. Government behavior
toward these industries is ambivalent, sometimes meting out strict
punishment to violators, but often simply looking the other way. If the
government does not privatize these industries, it will continue to lose
money that could be gained through taxation, application fees and
permits, indicating a weak spot in the state’s extractive capacity. But
the government recognizes the positive role that these informal sectors
have in internal development, and it is not eager to disrupt the
peaceful balance that characterizes the situation. Salahdine says the
ambivalent behavior of government "is a political effort to control
pockets of resistance” (p35).
At the end of the 1980's, the number of vehicles in the transportation
industry operating without permits was 300 times that of registered
vehicles. Using an essentially ethnographic methodology to investigate
the transportation sector, the author found that startup capital to buy
trucks is created primarily through the sale of small property or family
member loans. And over 80% of the establishments in the food, wholesale
trade, and retail trade sectors claim openly that they make regular use
of informal carriers (p22). The informal sector in construction actually
offsets the government’s insufficient housing remedies and lack of urban
planning. The foremen of these crews receive daily wages much more than
minimum industrial wage, which are slightly higher than salaries paid in
the formal sector. But it is not enough to permit investment in new
machines or hiring more workers. Even during times of increased threat
by authorities on builders, which increases the price, the customer
never pays more than 10% of the price of authorized housing (p31-33).
The customers for these houses represent the middle to lower economic
class but not the impoverished. They even pay property taxes because the
receipt is viewed as a legitimization of the dwelling and they are happy
to pay (p34). "In the end, the clandestine and informal nature of work
and production reveal the failure of state control of the economy”
(p37), and the author suggests that the government review and revamp
these regulations to fit the current situation of increasing
population. Because the government’s extractive capacity rests largely
through indirect taxation, the government is inefficient in collecting
revenue from its citizens. And an unfortunate realization is that
“current legislation in Morocco does not conform to working-class
realities or to the fundamental interests of small-scale entrepreneurs"
(p37).
1983 STABILIZATION
After the 1983 debt crisis, Morocco rationed its imports and almost
exhausted its foreign currency reserves, and implemented structural
adjustment measures that within a short time "broadly liberalized its
economy, particularly foreign trade" (Morrisson, p11). Although 30% of
the total population was in poverty at the time of the adjustment, the
stabilization policy did not give rise to recession and it appears
certain that in rural areas the situation generally improved (p13).
Remittances, a major source of income for poorer families, rapidly
increased, and the reorientation of the economy toward export markets
benefited a number of those working the informal sector. But
unemployment increased in the towns and most people except the least
qualified jobholders suffered income losses of 10% or more, including
those in the informal sector. Per capita spending on education and
health decreased.
The first objective of the 1983 stabilization program, balancing the
current account, was achieved, reduced from 13% in 1982 to 1.5% in
1986. The second objective, reduction of budget deficit, was partly
achieved, and in 1988 the deficit was limited to 4.2% of GDP, compared
to 14% in 1982. And GDP growth increased and exceeded 6% in 1985 and
1986, up from 1.9% in 1984; per capita GDP increased in 1985 and 1986.
Employment increased by 3.8% a year from 1982-1986, largely benefiting
the rural population. For agriculture, the average 1986 income was
higher than in 1982, and medium to large-size farmers benefited from an
increase in exports in both volume and value. The income levels of the
informal sector in 1986 were up to 1982 levels (p14). Social spending
cutbacks in 1983 were in capital spending and also took the form of
reductions in salaries, not in employees, so public services were not
terribly affected by decreased social spending.
Direct taxation on higher incomes, which is already low, was not
affected by the 1983 program. "A reform of the taxation system at the
expense of higher income groups appears essential if the employees in
the modern sector are to accept a policy of rigor in wages and salaries"
(p15-17). Of the three variables of taxes explained by Lewis Snider as
indicators of relative political extraction, for Morocco agriculture is
now the least significant since the government has decided to exempt
farmers from corporate and business taxes until the year 2020. Currently
it contributes about 20% to GDP, and employs 40-45% of the workforce
(MEED, Aug 1992), and so the country will lose out on a significant
portion of its direct taxes.
LIBERALIZATION and the INTERNATIONAL LENDING INSTITUTIONS
"There is a certain uniformity about the World Bank and IMF
prescriptions for structural adjustment in the Third World, arising from
the fact that strategies followed by political elites in different
countries, whether to consolidate their power and acquire material
assets, or out of genuine ideological conviction, have engendered
similar weaknesses in the economic fabric” (Perkins, p427). IMF and
World Bank activity in Morocco increased after 1981, and starting in
1983 a series of debt reschedulings began and various structural
adjustment and sectoral loans were provided by both. These loans were
part of a "total package of policies, the general objective of which is
a transition from inward-looking import substitution to outward-oriented
export expansion”(Campbell, p252). Increased aid from the IMF and the
World Bank is a reaction to the worldwide debt crisis of 1983-1986,
during which time the Middle East became a net importer of capital
(Griffith-Jones, p5).
During this time, the Moroccan government faced growing pressure from
these international creditors to implement more far-reaching measures
aimed at reducing public expenditure, encourage private enterprise and
investment, and promote greater efficiency in the allocation and use of
resources (Campbell, p246). The IMF and the World Bank were “oblivious”
to political repercussions as they pressed for structural adjustment,
and several structural adjustment loans were given despite social
disharmony resulting from the measures. The stabilization program was
complemented by an existing 1981-1985 Development Plan, which aimed at
growth within the economy while at the same time cutting expenditure in
areas such as education and food subsidies (p246). The World Bank gave
Morocco an industrial and trade policy loan and in 1984 Morocco intiated
a five-year agricultural sector adjustment program. The Moroccan
government felt compelled to adopt IMF and World Bank strategies because
if not, it risked major problems with debt rescheduling in near future.
This stabilization program involved a 10% devaluation of the dirham in
August, and cost of living rose by 8% between July and October but the
people seemed to accept these austerity measures (p248). The regions
most affected were the more disadvantaged North and South, mainly the
rural poor.
In 1985 there was general economic improvement and a reduction in
imports because domestic production was up and phosphate exports
increased (p252). The King offered tax-exemptions to farmers in drought
areas in May 1985, and currently farmers are exempt from taxes until the
year 2020. However, the net effect of these stabilization measures was
a decrease in GDP so that by 1988 Morocco was no longer a lower-middle
income country. Per capita GDP dropped to between US$515 - $750. Wary
of popular unrest, government gave 10% raises in industrial and
agricultural sectors and a 5% increase for civil service sector (p255).
SUMMARY OF TRENDS
Taken as a whole, the liberalization of the Moroccan economy improved
its balance of payments, is increasing its exports, and has reduced most
impediments to foreign investment. But it has not improved the economic
life for many people in Morocco. With a large uneducated and poor rural
population, which is currently more than half of the total population
(Morrisson, p22), the government cannot hope to better the traditional
sectors of the economy without increasing its investment in these
people. Political liberalization has not increased significantly with
economic liberalization in Morocco. The King has kept a largely loyal
and conservative legion of ministers, generally preventing populist
expression of the people through government. So although in the last
ten years the modern sector has improved, the concentration of power is
still held by the King and those loyal to him. The “prospects for the
consolidation of democracy” that Haggard and Kaufman hope for are dim
for Morocco as long as the sectors that are benefiting do so because of
government favoritism. One recent exception to this continued trend in
politics was the appointment of liberal left Finance Minister Mohamed
Kabbaj in June 1995, who called for greater transparency in the private
sector (MEED, June 95). The division between the traditional and modern
economies prevents a push for more political democracy, especially since
the traditional sector is largely ineffective in its political
opposition.
The GDP growth was high for 1976-77 but it was in a sense “growth on
credit”, and public investment was financed mainly by foreign loans
(Azam, p90). The resulting deficit led to the 1978 stabilization
program, which caused a decrease in the GDP to 2%. The financial
crisis in mid-1983 was due to overdebtedness, which led to loan
negotiation with the IMF and the World Bank. Noteworthy is the fact
that educated people had always been able to find jobs until the 1983
debt crisis. In order to preserve political and social stability, the
government expanded the public sector by hiring or investing in it at
the expense of export growth, to the dismay of the IMF and the World
Bank. Unfortunately, this increase in the public sector and the
accumulation of foreign debt were the immediate causes of the 1983
crisis for Morocco. It is possible that promoting labor-intensive
exports, and not protecting and giving preference to import-substitution
industries, would have increased jobs (p91). This harks to James
Mahon’s discussion of how the domestic investment class could prevail
against the interests of the exporter class, which emphasizes the
sectoral divisions in the Moroccan economy. Morocco reflects this
internal division in its modern sector, which at this time had fixed
interest rates on its loans, favoring urban laborers and
import-substituting industries.
The early 1990’s reveal a push for privatization in Morocco and one
fruit of this is the incorporation of the Moroccan BMCE Bank into the
EU. In 1994 this bank opened its first branch in Madrid, and now
Morocco may open other branch banks throughout the EU (MEED, Dec 93).
The political elites in Morocco have habitually and consistenly made it
their right to direct business activities as a way to consolidate
political power in different areas of the country, and the local utility
companies, regies, have a reputation for being a “bastion for vested
interests” (Jun 95). But the Jorf Lasfar power station, the largest in
Morocco, was privatized in 1997 (Sep 97), and the state telephone and
telecommunications industry began privatizing in 1996 (Nov 96); each is
either partially or totally foreign-owned.
In 1992, foreign investment rose by 70% over the same period in 1991
(Dec 92) and this is a good sign of investors’ increasing faith in the
Moroccan economy. This kind of FDI should be less restrictive than the
concessional funds provided by the IMF and the World Bank in the
1980’s. So although by 1992 Morocco passed Turkey in amount of money
received from the World Bank, IMF funding to Morocco was very low by
1995 as the government attempted to improve its balance of payments
situation (Jun 1995). “Substantial inflows of finance from the Gulf
during the 1990-91 crisis and sound financial management mean that
foreign exchange reserves have grown fast: for the first time in many
years reserves, estimated at nearly $3,000 million, should exceed
estimated debt repayments (proj. at ~$2,200 million) in 1992” (Aug 92).
By 1995, the external debt was down from 130% to 60-70% of GDP (Jun 95),
and King Hassan has pledged his “full support” for fiscal reform.
Important is the government-business relationship amidst all of this
privatization. Whereas the Israeli government is moving toward a more
or less hands-off attitude toward its business enterprises, both in
ownership and directing capital, Moroccan investments remain close to
the interests of the government. The Moroccan government is less
ideologically motivated than Israel’s, which had a combination of
Zionist influences directing the development of the Jewish state.
Despite Israel’s ideological influences, which did not paralyze it as
happens in some other Middle Eastern countries, Israel managed to solve
many of its practical economic problems with hard work, oppression of
certain sectors of the population, and huge loans given it by the United
States. Lacking similar tremendous financial support, coupled with the
logistical failure of Morocco to integrate its traditional and modern
economies, Morocco found it necessary to obtain loans and assistance
from institutions such as the IMF and the World Bank. The next paper
will consider more closely the political situation and banking reform
outlined here, and compare the economic conditions of Morocco and Israel
vis a vis the global economy.
BIBLIOGRAPHY
Jean-Paul Azam, The Political Feasibility of Adjustment in Cote D'Ivoire
and Morocco (OECD, 1994)
Bonnie K. Campbell and John Loxley, Structural Adjustment in Africa (St.
Martin's Press, 1989)
A. Lawrence Chickering and Mohamed Salahdine, The Silent Revolution (ICS
Press, 1991)
Stephany Griffith-Jones and Barbara Stallings, "New Global Financial
Trends: Implications for Development," JISWA, 37, 3 Fall, 1995
The Economic Development of Morocco (Johns Hopkins Press, 1966)
Clement M. Henry, The Mediterranean Debt Crescent (AUC, 1997)
Christian Morrisson, Adjustment and Equity in Morocco (OECD, 1991)
Dwight Perkins and Michael Roemer, Reforming Economic Systems in
Developing Countries (Harvard, 1991)
Price Waterhouse Information Guide, 1994
http://www.i-trade.com/infosrc/pw/mor/TOC.htm