Almost one year ago, countries in the Middle East region embarked upon a historical transformation. Today, the state of play remains uncertain, with the setbacks and intensity of disruptions larger than expected. Here, I am thinking especially of the deplorable loss of life in places like Libya, Syria, and Yemen. And we are now moving into the most difficult, risky, and uncertain period of all.
As I mentioned in a speech today hosted by the Safadi Foundation at the Wilson Center in Washington D.C., we are in the middle of a delicate transition between "rejecting the past" and "defining the future." It is a period when hard choices must be made, when post-revolutionary euphoria must give some way to practical concerns. It also does not help that this is happening at a time of great turmoil in the global economy. But I remain hopeful. The final destination is clear: the Arab Spring is still poised to unleash the potential of the Arab people.
It will be important to manage this difficult transition in an orderly way.
And here, I want to pay tribute especially to the people of Tunisia, who are going through a smooth and inclusive process of transition. Just as Tunisia provided the first spark of the Arab Spring, so now can it light the path forward for other countries in the region.
We all learned some important lessons from the Arab Spring. While the top-line economic numbers -- on growth, for example -- often looked good, too many people were being left out.
And, speaking for the IMF, while we certainly warned about the ticking time bomb of high youth unemployment in the region, we did not fully anticipate the consequences of unequal access to opportunities. Let me be frank: we were not paying enough attention to how the fruits of economic growth were being shared.
It is now much clearer that more equal societies are associated with greater economic stability and more sustained growth.
While each country in the region must find its own path to change, the over-arching economic goals of the Arab Spring remain clear -- higher growth, growth that creates more jobs, and growth that is shared equitably among all strands of society.
To that end, let me emphasize a very important point: macroeconomic and financial stability remain absolutely essential, core building blocks of any new society. Without this secure foundation, any efforts to respond to people's aspirations can simply not be realized.
Working in harmony
To date, governments have responded to social pressures by increasing subsidies, wages, and other spending, to help lessen the hardship faced by ordinary people. This was needed for social cohesion in the short term. But it does not come without cost. Fiscal deficits have widened, which raises concerns about sustainability. It pushes up interest rates, which makes it harder for the private sector to get credit to set up or expand businesses and start hiring people. So across the region, governments need to move towards better and sustainable fiscal policies.
In particular, more targeted social protection systems would help free up funds for spending on areas like infrastructure, education, and health while laying the foundations for inclusive growth. This would be a break from the past when generalized subsidies were used to appease the population while allowing the privileged to benefit from unfair practices. So, macroeconomic stability and inclusive growth can -- and indeed must -- go hand in hand.
What is more, the government and the private sector must work in harmony. The private sector, including small and medium-sized enterprises, must take on a leading role, to boost investment, productivity, competitiveness -- and create jobs.
But for this to happen, the government must provide an enabling environment. It should put in place modern and transparent institutions to encourage accountability and good governance and ensure fair and transparent rules of the game. The government must also lay the foundations of a modern and competitive economy by breaking down the vested interests and cozy networks of privilege that prevent the region from reaching its true economic potential. There is simply no other way to create the 50-70 million jobs needed for the people joining the labor force and to reduce unemployment over the next decade.
Of course, the region's destiny lies with itself, but the international community also has a responsibility to help. It must listen to the hopeful voices and provide support -- including financing, technical assistance, and market access.
The IMF too stands ready to help. We are working closely with our members in the region, and we are willing to walk the path with them. We are offering the best policy advice possible. We will provide financial help if requested.
And with our technical assistance, we are helping countries build better institutions for a better world. Some examples: We are helping Egypt make its tax system more equitable. We are helping Libya develop a modern system of government payments. We are helping Tunisia improve its financial sector. And we are helping Jordan with fuel subsidy reform.
Amidst a darkening economic outlook and waning confidence, the Arab Spring still shines as a bright light and a beacon of hope, a symbol of what can be accomplished. The region, together with its international partners, must make sure that this light is never extinguished.