jordan has been implementing, since 1989, with the support of international institutions and countries, a strong stabilization and structural reform program. as a result, the improvements achieved in a number of important areas have been satisfying. real gdp grew between 1992-1997 by seven percent. investment to gdp increased substantially from 22 percent in 1989 to 33.1 percent in 1997. national savings increased from a negative amount in 1989 to 4.7 percent in 1997. excluding grants, the budget and current account deficits were reduced from over 20 percent of the gdp at the beginning of the program to 3.6 percent and 4.9 percent, respectively,

in 1997. moreover, inflation was reduced from 25.6 percent in 1989 to an average of 3.8 percent between 1992-1997. simultaneously, the exchange rate was stabilized while the reserves increased from us$400 million two years ago to approximately us$ 1700 million at the end of 1997, an amount sufficient to cover more than four months of imports.

monetary policy is controlled by the central bank of jordan, which has played a key role in promoting balanced and sustainable economic growth in the kingdom. in 1996, monetary policy facilitated fiscal stability, with a greater focus on increasing the foreign currency reserves of the central bank to enhance the stability of the exchange rate of the dinar, one of the main requirements of balanced and sustainable economic growth.

to achieve monetary stability, the central bank continued its intervention in the money market through use of the indirect monetary control approach as a seller or buyer of three and six-month certificates of deposit (cds) denominated in the jordanian dinar. consequently, the outstanding balance of cds in 1997 increased by jd 438 million, increasing the total balance of cds by 71% to jd 1055.6 million. interest on these cds decreased slightly in 1997: the highest rate on three-month cds was 6.25% and the highest rate on six-month cds was 6.5%, compared to 9.25% and 9.5%, respectively, in the previous year.

accordingly, monetary expansion slowed in 1996 to 0.3% and grew to 7.8% in 1997. credit extended to the private sector grew by jd 176.1 million in 1997 over its 1996 level. this was due to a decline of jd 111.2 million in net credit extended to the government by the banking sector. the decline in net credit extended to the government would have fallen to jd 115.6 million if net government borrowing from the international monetary fund (imf) had been taken into consideration. as a result, the increase in the net foreign assets of the banking system contributed 8.1% to the growth of domestic liquidity in 1997, while net domestic assets had a contractionary effect of -3%.

monetary policy was successful in achieving its goals because of aggregate monetary measures taken during 1996. inflationary pressures were contained, particularly those which arose from the aggregate demand side of the national economy. the stability of the dinar's exchange rate relative to most major foreign currencies was maintained, to a great extent because of the exchange rate policy adopted by the central bank toward the end of october 1995, which gave priority to stabilizing the exchange rate of the dinar relative to the us dollar, while allowing the former to fluctuate slightly relative to other currencies.

the central bank's policy played a major role in preserving confidence in the dinar as a saving instrument because of its stable exchange rate, and as a result of the increase in returns on dinar deposit relative to the return on us dollar deposits. consequently, the attractiveness of dinar-denominated assets increased relative to foreign currency-denominated assets. this led to an increase in the foreign currency reserves of the central bank by jd 996.1 million over its level in 1996 to reach jd 1200 million or us$ 1700 million at the end of 1997.

jordan's free zone areas were established to promote export-oriented industries and transit trade. commodities and goods of various origins are deposited in the free zone areas for the purpose of storage and manufacturing, without having to pay the usual excise fees and other taxes, as they are treated like goods outside jordan. there are currently two operating free zones in jordan, at aqaba and zarqa, and they are operated by the jordanian free zones corporation, an autonomous government agency.

currently, the new free zone project at sahab covers a total area of 63,000 square meter at the sahab industrial estate has been designated for serving the industrial investors in addition to aiding in the establishment of export-oriented industries. meanwhile, the free zone project at queen alia international airport covers an area of 120,000 square meter has been allocated for the purpose of serving transit trade and establishing light high-tech, pollution-free industries. in addition, plans are under consideration for promoting private free zones in jordan, as well as for setting up a trilateral free zone including jordan, the pna territories and israel.

foreign and local companies established in free zones enjoy the following incentives and exemptions:

the profits of projects operating in the free zones are exempt from income and social affairs taxes for a period of 12 years.
salaries and bonuses of non-jordanian employees working in the free zones are exempt from income and social affairs taxes.
all commodities imported or exported through the free zones and bound for external markets are exempt from customs, imports and all other taxes and fees.
constructions erected in the free zones are exempt from license fees, and land is exempt from property taxes.
the transfer of capital invested in the free zones and the profits accrued from them is permitted to anywhere outside jordan, without any constraints or restrictions.
the products of free zone industries are exempt from customs fees in the case of offering them for consumption in the local market, limited by the cost of the local material and the expenses which go into their manufacture

in general, the jordanian economy is private-sector oriented. accordingly, direct state ownership is relatively small. it is significant only in the mining sector (phosphates and potash) and in public utilities (electricity, water, communications, and bus, railway and air transport). in 1992, before the privatization program began, the proportion of gdp from public sector establishments, excluding producers of government services, reached only 14%. the private sector share of gdp in 1992 was concentrated in construction (100%), manufacturing (94%), and in financial, business, community and personal services (95%).

however, jordan recognizes that the continued recovery and future growth of the economy depends primarily on a more proactive role of the private sector and a redefinition of the role of the government in the economy. therefore, the privatization program aims at enhancing enterprise efficiency through the sale of shares to technically advanced strategic investors, deepening the financial market through public share offerings, and reducing subsidies andconsolidating public finances.

a series of policy initiatives were launched to downsize the government's direct participation in the productive sectors and allow the private sector to manage these sectors in a more efficient and cost-effective manner. in order to facilitate the process in a speedy and transparent manner, an executive privatization unit (epu) has been established at the prime ministry to: coordinate the preparation of the divestiture transactions within an overall framework based on comprehensive guidelines and regulations; manage the technical experts and consultants; manage the marketing efforts of enterprises being divested; execute transactions; negotiate with concerned parties, and disseminate information regarding the progress of the program.

the privatization program is being implemented in two phases. during the first phase, several entities within the telecommunications, tourism, energy, industrial, transportation, mining, and water sectors are at some stage of privatization. the second privatization phase looks at all the restructuring options available for privatizing the national petroleum corporation, arab potash company, jordan phosphate mines company, royal jordanian airlines, jordan investment cor

the government has long recognized the need for establishing business-enabling structures with strong investment incentives. developing an efficient regulatory framework activates the role of the private sector, increases the volume of domestic investment, and attracts inward international investment. a wide-ranging legislative package has been drafted and introduced to foster a more efficient and transparent business environment.

the income tax law :
this law has been amended, reducing the tax rate for banks, financial institutions and insurance companies from 50% down to 35% of taxable income. industrial and mining companies, hotels and hospitals now pay 15%, while other companies pay 25% of taxable income.

the sales tax law :
in late 1995, a new sales tax law was passed, increasing the general sales tax rate and expanding its coverage. this new tax structure aims at boosting the level of savings and investment and decreasing consumption to manageable levels as noted earlier.

realizing the interdependence of the economies of the world, jordan has taken the lead in a number of areas aimed at integrating its economy with the region and the world. on the trade side, the government is determined to further liberalize the trade regime in order to improve the efficiency of jordanian firms and meet the challenges of increased international competition.

the jordan-european union free trade agreement and other agreements:

the partnership agreement with the european union is one of the early benefits and a significant manifestation of jordan's drive toward integrating its economy both on a regional and global level. the agreement calls for the gradual removal of trade barriers and the establishment of a free trade zone with the european community over a twelve year period.
in addition to benefits in the political, social and cultural fields, the new partnership agreement promises distinct economic yields for jordan's development. the accord, which will come into force on january 1, 1999, will:

encourage more direct european investment in jordan.

provide free access to eu markets for the kingdom's agricultural and industrial products; the partnership agreement also allows for future increases in the quotas and the variety of agricultural produce that jordan can export to the eu; and,

facilitate the transfer to jordan of state-of-the-art technology.

moreover, the eu has pledged to set up a special fund for assisting jordanian industries to adjust to the requirements of the agreement, enhance their export capacity and improve their competitiveness. currently, jordan is hosting the business service team, a group of local and european experts funded by the eu that provide technical and managerial support to businesses in jordan.

the qualifying industrial zones:

in march 1998, jordan and israel signed a bilateral agreement designating el hassan industrial estate in irbid as jordan's first qualifying industrial zone (qiz). the qiz has attracted a very fast inflow of foreign investment, as it provides investors the unique opportunity of full duty-free access to the us market for any goods produced within the zone. jordan benefits greatly from the investment, in the form of increased employment opportunities for jordanians and a transfer of technology.

the qiz, which was first announced during the 1997 mena conference in doha, qatar, requires that jordanian and israeli manufacturers should each contribute an input of at least 11.7% of the investment capital.

the success of el hassan industrial park has prompted the establishment of another qiz, south of the sheikh hussein border crossing in the jordan valley. the us$ 280 million joint jordanian-israeli industrial park straddles the border between the two states. the park is expected to open in its first phase in late-1999 or 2000. el hassan industrial estate in irbid is also slated for major expansion, due to the overwhelming demand for space there. other areas in the kingdom may be designated qiz in the near future.