Tunisia: Goodbye to State Socialism. Reforms promise to make it one of the most liberal economies in the Arab world

By , Staff writer of The Christian Science Monitor

A visitor to Tunisia familiar with its past reputation as the ``sick man'' of North Africa might be pardoned these days for doing a double-take. The 17 months since the fall of the country's autocratic founding patriarch, Habib Bourguiba, have witnessed a veritable ``Tunisian spring'' of political liberalization.

More striking has been a reorientation away from three decades of state socialism that has retrieved Tunisia's economy from near collapse three years ago and helped produce the highest economic growth rate in North Africa.

Economists partly credit the turnabout to the International Monetary Fund which, in return for a $259 million loan three years ago, forced Tunisia to reduce its deficits and public spending.

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Diplomacy has also played a part. Following the restoration of relations with Tripoli early last year, Libyan tourists surged across the Tunisian border, spending $600 million on consumer goods unavailable at home.

The centerpiece of the recovery program has been a package of economic reforms that promise to make Tunisia one of the most liberal economies in the Arab world.

This combination of factors has produced impressive results: exports, remittances, and foreign currency reserves all increased in 1987 and 1988, while tourism soared. Last year Tunisia recorded its first balance of payments surplus since gaining independence in 1956.

Improving economic conditions have fueled aspirations that Tunisia might some day replace Lebanon as a key financial link between the Arab world and Europe.

``Our ambition is to make out of Tunisia a financial and trade center'' says the head of the country's central bank, Ismael Khalil.

Mr. Khalil says all the elements are in place to make such hopes a reality: stability, favorable investment laws, an entrepreneurial private sector, and an economic foot in the doors of Europe, the Maghreb, the Arab world, and even sub-Saharan Africa.

Hopes of becoming the next Beirut in a financial sense have been nourished by the recent decision of New York's Citibank to open a branch in Tunis, a move Tunisians point to as a sing of investor confidence.

One big step was lowering the value of Tunisia's currency. An artificially high exchange rate was good for the politically influential middle class because it made luxury imports affordable. But it hurt local producers, whose goods were priced out of foreign markets and who were thus forced to sell to the much smaller domestic market.

``We realized that if we were to speed up growth we needed to rely on external markets.'' says Khalil, of the government's decision to reorient the Tunisian economy toward exports.

In three years Tunisia has dismantled barriers and created incentives to foreign investment, allowed the market to set most domestic prices, eased trade restrictions, and even allowed private banks to take over the job of setting interest rates.

``We're watching rather than directing,'' says Khalil of the government's scaled-back role in managing the economy.

The cornerstone of the reform program was a decision to begin privatizing most of Tunisia's 300 state-run enterprises.

But privatization has run head on into the country's high unemployment and birth rates.

Getting Tunisian companies into fighting trim to compete in the private sector means cutting back on thousands of unnecessary employees. But the government already has its hands full coping with the 70,000 new workers dumped onto the job market each year.

With more workers than jobs, the government has had to slow down its ambitious privatization schemes. In turn, that has meant postponing the day when other elements of the reform package, including the abolition of currency restrictions, are allowed to kick in.

``We have to go slow to minimize the impact,'' concedes Khalil, noting that the government is short on solutions to the problem of 15 percent unemployment.

Economists are also keeping a worried eye on 1991, the year when, for the first time, Tunisia will become a net importer of energy.

``The decision has been made to move to a more market oriented economy,'' summarizes one Western diplomat. It's going to be much slower and more painful than anyone realized in advance.''

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