Tunisia – Political Leaders Looking to End Crisis

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Political Leaders Looking to End Crisis

A protracted political crisis that has threatened to derail the democratic transition initiated after the downfall of Tunisia’s entrenched autocratic regime in January 2011 appears to have reached a peaceful resolution.  However, tensions between secular and religious political forces are still running quite high, and there is a clear potential for outbreaks of politically motivated conflict or other complications that could yet bring the transition to a halt.
On October 5, the moderate Islamist Ennahda (Renaissance) Movement, which heads the interim coalition government, and the National Salvations Front (NSF), a bloc of 18 smaller secular opposition parties, signed off on an agreement under which Prime Minister Ali Larayedh’s Cabinet will step down in favor on an independent caretaker regime that will oversee preparations for presidential and legislative elections in 2014.  According to the timeline, the caretaker regime is to be in place no more than three weeks after the initiation of a national dialogue that will commence within days.  In addition, the National Constituent Assembly (NCA) is to complete the process of drafting and approving a new constitution within a similar time frame, thereby establishing a basis for appointing election officials and scheduling elections.
While the signing of the agreement, which was brokered by the Tunisian General Labor Union (UGTT), is a positive step toward repairing a political process damaged by extremist violence, it remains to be seen whether all parties to the deal are fully committed to fulfilling its terms.  Tellingly, the signing ceremony was delayed for several hours, reportedly owing to the opposition’s attempt to make last-minute changes to the agreement, a move that was criticized by members of Ennahda’s secular coalition partners, the Congress for the Republic (CPR) and the Democratic Forum for Labor and Liberties (Ettakatol).
Growing Mistrust
The crisis erupted in July, when, for the second time in five months, suspected Islamist extremists assassinated a secular opposition politician known for his strident criticism of Ennahda and Islamist politics in general.  The fact that Mohammed Brahmi, the leader of the People’s Movement, represented Sidi Bouzid, the city known as the cradle of the uprising that toppled former President Zine El Abidine Ben Ali from power, added to the symbolic significance of the July killing.  Security officials blamed the assassination on the same Al Qaeda-linked extremist group responsible for the killing of Chokri Belaid, the leader of the leftist Popular Front, in February.  Ennahda’s critics blamed Belaid’s killing on the government’s unwillingness to confront militant Islamists, a view that was reinforced by the second assassination in July.
Following Brahmi’s death, more than a dozen opposition parties claiming a total of 51 seats in the NCA formed the NSF, with the aim of forcing Larayedh’s government to resign.  In all, nearly 70 opposition lawmakers withdrew from the NCA, declaring the body (and the process of drafting a constitution) to be illegitimate as long as Ennadha continued to head the government.  Tensions mounted when the opposition threatened to form an alternative Cabinet if Ennahda refused to step down, and self-styled revolutionary committees with ties to the opposition emerged in several cities, including Sidi Bouzid.
Belaid’s assassination had provoked a similar popular push for regime change, but Ennahda managed to cling to power by renewing its alliance with the CPR and Ettakatol, after agreeing to appoint independent technocrats to key Cabinet positions.  However, this time, the president of the NCA, Mustafa Ben Jaafar, the leader of Ettakatol, declared that he would halt all legislative business until Ennahda agreed to talks on a caretaker government.
In late August, following a month of continuous pro- and anti-government demonstrations, Ennahda’s veteran leader Rachid Ghannouchi agreed to talks with the opposition, no doubt motivated in part by a desire to avoid an Egypt-style overthrow of the Islamist-led government.  In that regard, the UGTT’s threat to launch an indefinite general strike if Ennahda did not accepts its proposal was likely an important factor.
Is Islamist-Secular Cohabitation Possible?
There is some basis for optimism that a fresh crisis can be avoided down the road.  In contrast to the situation that preceded the forced removal of Egypt’s Islamist president in early July, Ennahda’s leaders appear to be genuinely committed to the goal of pluralist democracy, and, although it made an effort, the opposition failed to galvanize a mass movement in support of its demand for the government’s immediate resignation.
Likewise, its strike threat notwithstanding, the UGTT has refrained from using its organizational muscle to undermine the government, instead applying pressure for negotiations, while the security forces have limited their role in events to maintaining law and order.  Finally, officials indicate that a draft constitution is near completion, thanks in large part to Ennahda’s concessions on some of the more controversial clauses of the document.
But even if Tunisia does not go the way of Egypt, where secular parties have consented to the derailment of that country’s democratic transition in exchange for the removal of an elected Islamist administration by means of a bloodless coup, long-term political stability will continue to hinge on the secular parties’ willingness to tolerate Islamist participation in (if not control of) a future government.  At the 2011 elections, Ennahda won 37% of the vote; its closest competitor, the CPR, won just 8.7%.  As Ghannouchi’s party faces little competition for the Islamist vote, there is good reason to expect that Ennahda will put in another strong performance at elections held in 2014.
The division of the secular vote among dozens of smaller parties left the non-Islamist parties enabled Ennahda to establish itself as the dominant force in the NCA, despite the fact that nearly two-thirds of voters backed secular parties.  Acknowledging that handicap, several secular parties have sought to overcome it by combining their forces.  Back in February, the Republican Party (the largest non-government party in the NCA) teamed up with four smaller parties to form the Union for Tunisia, which in July 2013 aligned itself with the NSF.  The trend toward the consolidation of secular political forces creates the potential for the emergence of a non-Islamist counterpart that can challenge Ennahda for legislative dominance in future elections.
However, a common secular perspective might not be a strong enough glue to hold the new alliances together.  The various secular parties occupy positions all along the ideological spectrum, and differences between leftists and conservatives on matters of policy could prove to be more powerful than their shared goal of keeping the Islamists out of power.  Moreover, there is variation with regard to their antipathy toward Ennahda, with some unwilling to tolerate any political role for the Islamists, and others (most notably the CPR and the Ettakatol) willing to cooperate with Ghannouchi’s party as a means of balancing secular and Islamist influence.
All things considered, it seems reasonable to assume that Ennahda will continue to be an influential political force as long as the party remains free to compete for power in elections.  A key political risk going forward is the danger that some secular forces will attempt to impose restrictions on the Islamists’ ability to compete, or will seek to undermine, by extra-constitutional means, the ability of any Islamist-led administration to govern effectively.  In either case, the threat of increased polarization that leads to chronic (and perhaps violent) internal unrest would be high.
Pressure on Militants Failing to Yield Results
At the very least, avoiding such an unwelcome scenario will require a more aggressive approach to dealing with the religious extremism that has contributed to a general climate of polarization.  The Interior Ministry has linked the two high-profile political murders this year to Ansar al-Sharia, an increasingly influential Salafist organization.  The group was formally added to the government’s list of terrorist organizations, making membership in Ansar al-Sharia a criminal offense.  That move followed a wider crackdown on Salafist organizations in May, when the government arrested some of the leading Salafist preachers and disrupted their gatherings.
Despite the crackdown, attacks on security forces in western Tunisia have grown bolder—on July 29, gunmen killed eight soldiers near the Algerian border, an incident described as the most serious breach of security in decades—and the current climate of political crisis and deteriorating economic conditions is hardly conducive to thwarting the recruiting efforts of extremist groups.  A long-term strategy of containing groups like Ansar al-Sharia will require a significant improvement in the living conditions and the economic integration of the impoverished population that inhabits the suburbs of Tunis and the country’s marginalized interior.
Nor has the government’s effort helped Ennahda politically; the opposition has dismissed it as too little, too late, and leaders of Ansar al-Sharia have sought to sow dissent within Ennahda’s base by deriding him as an opportunist who is willing to abandon Islamist goals in order to hold on to power.  Conservative Islamists are poised to exploit the disillusionment among the more hard-line elements of Ennahda’s base with Ghannouchi’s attempts to bridge the Islamist-secular divide.
For their part, Islamist militants appear to be trying to provoke a disproportionate response by the security forces with the aim of igniting a wider confrontation between Tunisia’s Islamists and secularists.  In that vein, the possibility of a low-level insurgency taking root in some parts of the country over the next year should not be ignored.
IMF Deal Approved, Policy Profile Uncertain
In April, the IMF approved a two-year, $1.74 billion lending agreement, following delays stemming from uncertainty over the administration’s willingness and ability to fulfill the terms of the agreement.  Access to IMF funds will help to finance this year’s budget deficit, but the eruption of the political crisis in July has raised new doubts over the timeline for fiscal reforms proposed under the agreement.
Several reform drafts are on the table.  An audit of Tunisia’s three largest state-owned banks is due to conclude in December, as part of plans to restructure the banking system, which has been troubled by rising levels of non-performing loans (around $6.1 billion, or 19% of the total loans).  The government estimates the cost of bank recapitalization at $1.1 billion, or roughly 2.5 % of economic output.
The government plans to set up an asset management company to buy bad tourism assets in exchange for state-guaranteed bonds.  Further changes to the system of energy subsidies are slated for 2014, along with reforms of the tax system which under Ben Ali favored exporters and failed to encourage investment in the country’s poorest regions. The authorities have pledged to narrow the overall fiscal deficit to 2.5% of GDP by 2018.
However, the prospects for near-term progress on reforms are clouded by the questionable mandate of a caretaker regime to implement what are sure to be unpopular policies, and the difficulty of predicting the makeup of the government that will be formed following fresh elections that are likely to be held before the middle of next year.  The risks inherent in the recent political tumult were acknowledged in August by Standard and Poor’s, which downgraded Tunisia’s long-term debt from “BB-“ to “B,” with a negative outlook due to threats of government instability and terrorism.

Risks to Growth Trajectory

Political and labor unrest will add to pressure on the key tourism industry and foreign direct investment (FDI), the latter of which was already running behind the pace set in 2012 over the first half of the year.  In August, the Finance Ministry cut its official growth forecast to 3.6%, citing the persistence of weak demand in the euro zone.  Activity in the euro zone as a whole is actually picking up, but not at a pace that would provide a significant boost for Tunisia’s exports to the region.  However, the central bank subsequently pointed to the domestic political crisis as the chief threat to the economy in 2013, and real GDP growth of even 3% would be surprising under the circumstances.
Signs of easing inflation in the second half of the year are an indication of a loss of economic momentum.  Year-on-year inflation eased to 6% in August, after hitting a five-year high of 6.5% back in March.  Food and drink prices were up by 7.8% in August, but the cost of clothing and footwear dropped by 6.5% compared to August 2012.  In any case, average annual inflation is likely to stay well above 5% this year, a prospect that makes it unlikely that the central bank might opt to cut the key interest rate, which currently stands at 4%, in the coming months.
The external position remains challenging.  The dinar lost 15% of its value against the euro in the first half of the year, and disruptions to economic activity during the summer strikes and protests added to the pressure on the currency and inflated the import bill. The room for shielding the dinar is limited.  Foreign currency reserves stood at $6.85 billion in July, equivalent to barely more than 100 days of import cover—the level considered adequate by the central bank.  Weak inflows of FDI and lower tourism receipts will widen the current account deficit to 9.1% of GDP.
Official budget deficit projections have also been revised upward—from 5.1% of GDP to 7.4%—due to higher than programmed government spending on salaries and subsidies.  The budget for 2014 targets total spending of $17.07 billion, an increase of 2.2% compared to 2013, but projects a narrowing of the deficit to 6.5% of GDP, with new revenue measures, such as the imposition of a 10% tax on exporting companies previously exempt from obligations, being counted on to boost income.  The government expects total debt to reach 48% of GDP this year, but has warned that it could reach 52% if salaries continue to rise.  A caretaker administration will presumably be immune to pre-election pressure for wage increases, but wage concessions would be a distinct possibility if strikes and other labor-related unrest contribute to instability that threatens the timetable for holding elections.

Economic Forecasts for the Three Alternative Regimes

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