Looking at the Bigger Picture: Yemen Has Earned Much International Approbation for Its Stance on the War against Terrorism, but Unless It Moves Swiftly to Implement Economic Reform at Home, More Than Its Status in the World Community Will Be Lost

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SINCE YEMEN JOINED THE UNITED States to fight terror soon after the attacks of 9/11, it has rounded up hundreds of terrorist suspects, clamped down on religious schools believed to be teaching extremism and thwarted a number of terrorist attacks. But many experts are concerned that if the government does not take action to reduce poverty and give a boost to its stagnant economy, Yemen will inevitably become fertile recruiting ground for Al Qaeda and other terrorist and rebel groups.

Abdullah Al Faqih, professor of political science at Sana'a University, believes if the government does not act soon to reform its economy, "Yemen will undergo periods of instability, conflict and lawlessness. It will be a breeding ground for extremism and terrorism, eventually serving as a destabilising force in the region."

Economic conditions in Yemen have gone from bad to worse in recent years. Economic growth is not keeping pace with the rising population, increasing at an estimated 4% annually. The GDP growth rate fell below 3.6% last year and is nor expected to have exceeded 3.3% in 2004.

Some 42% of Yemenis live below the poverty line, while 25% are hovering or categorised as poor. As many as 40% of Yemenis are out of work, and earlier this year the Arab League calculated that Yemen remains the poorest country in the Middle East with an average annual per capita income of $508.

The government has plans to reform the economy but since the Poverty Reduction Strategy Paper (PRSP) was put together in 2002, plans have stalled.

"The government of Yemen has not acted on the reform measures recommended by The World Bank in the last year-and-a-half to two years," explained Robert Hindle, a country manager for The World Bank based in Yemen.

One explanation for the government's delay at pushing through economic reform is that lately, it has focused most of its energy on the war on terror and national security.

"First we have to sustain our security level because there is no development or peace without security," noted minister of planning and international cooperation and deputy prime minister, Ahmed Sofan. If we measure government priorities, security must come first."

Others argue that it is those who are profiting from the current system who are doing their utmost to resist change.

Yahya Al Mutawakel, advisor at the Ministry of Planning and International Cooperation, described the decision to reduce subsidies on diesel fuel as a good example of those with vested interests pursuing their own agendas. Up to $600m a year in subsidies has kept the price of diesel in Yemen 75% lower than in neighbouring countries. If the money from fuel subsidies was redirected elsewhere, those profiting from the brisk trade in smuggling fuel across Yemen's borders would be hurt financially. "Lifting the subsidies on diesel fuel is a major element for reform because it has been a flagrant misuse of funds," said Al Mutawakel.

Even though The World Bank says the strength of oil revenue coming from high nil prices should encourage the government to implement key reform, others believe the luxury of better oil earnings could earn the government more time to assess and, where necessary, re-evaluate the economic situation before taking action.

"Oil revenues have been favourable," said Al Mutawakel. 'This additional income could be used in two ways: To speed up economic reform or to buy more time to rake steps towards change wisely."

Part of the economic reform plan allows for the government to pass more responsibility to the private sector: More local and foreign investment would further boost economic growth and generate more jobs.

But up to now, the government has made little progress in improving financial security for investors by reforming the judicial system. "It is hard to picture people investing in Yemen when there is no legal protection for doing business here," said one Yemeni businessman. …