Dispatch

Fiesta Del Few

Spain’s economy might technically be growing again, but most people are still feeling the squeeze.

MADRID — They say the party is back on in Spain. Money "is pouring in from everywhere," according to Banco Santander Chairman Emilio Botín, and the country's benchmark stock index, the Ibex 35, is up around 20 percent since January. Last week, the Bank of Spain confirmed that the economy is finally growing again after a nine-quarter recession. Even Bill Gates has gotten in on the action, taking a 6 percent stake in Fomento de Construcciones y Contratas, one of Spain's biggest construction companies. But if the party is back, it's a decidedly elite gathering.

Only big business and those who enjoy access to international finance appear to be on the guest list. As for the vast majority of Spaniards? Well, their best hope is to find work popping champagne corks for those who made the cut. 

The collapse of Spain's banking system -- and the sheer quantity of previously unwanted real estate and low-priced office space -- means the bargain hunters are moving in; according to El País newspaper, international investors have bought stock and property worth nearly 14 billion euros so far this year after a desperate 2012 that saw virtually no sales.

And now, after the longest recession in living memory, the economy is growing again -- just barely -- with the Bank of Spain reporting 0.1 percent quarterly rise in gross domestic product (GDP) for the July-September period. This year will still see Spanish output shrink by over 1 percent, while the government's forecast for next year stands at an anemic 0.7 percent growth. That's hardly likely to make a dent in the country's crippling unemployment figures of 26 percent, or just under six million.

After a half-decade of crisis in the form of a double-dip recession, Spain's recovery period is set to be painfully gradual. What's worse for those who are out of work -- and for the growing proportion of Spaniards whose labor conditions are precarious -- is that the ongoing human crisis may actually form the basis of the Popular Party (PP) government's recovery plan: a low-wage, low-tax, and ultra-flexible discount sale where investors can place their bets.

Not that it appears to be making a dramatic impact. Apart from the headline figure of the first quarter-on-quarter rate of growth for two-and-a-half years, the Bank of Spain's report on the economy in the third quarter made for somber reading. In addition to the fact that the economy had shrunk by 1.2 percent over the previous year, the figures showed that Spain's domestic market is still contracting, making a negative contribution to a meager output of 0.3 percentage points on a quarterly basis. The head-above-water overall growth rate is thanks to net trade -- exports minus imports -- which boosted GDP by 0.4 points. But even this is bad news. Imports are down because so many Spanish households are in scrimp-and-save mode, while exporters are becoming more competitive thanks to lower wages, which are falling in real terms.

"No one is laying out on anything, unless they really have to," said one unemployed mother in Madrid in late October. Third-quarter unemployment figures showed a slight drop, but the number of indefinite contracts fell nationwide by 146,300, offset by a slightly more dramatic rise in temporary jobs.

"There has been a major adjustment, a big internal devaluation with negative consequences for the people," says Miguel Jiménez, the financial editor at El País. Of course, this has been a selling point for the right-of center administration. According to Finance Minister Cristóbal Montoro, it has managed an internal devaluation of the magnitude of 30 percent: "What's more, it is a devaluation without inflation. It is extraordinary. This allows Spain to recover credibility," the minister crowed in a recent El País interview.

News this week, however, brings the specter of deflation into view, with a National Statistics Institute flash estimate of -0.1 percent on price variations for the year up to October.

So how were the seeds of this internal devaluation sown? When Prime Minister Mariano Rajoy's government introduced its 2012 labor reform, the biggest howls were directed at its plan to make it easier for companies to terminate employees. Now, it is indeed easier and cheaper to downsize, but what is turning out to be even more significant is that employers can now unilaterally cut salaries citing "objective causes." Falling sales, it turns out, are reason enough.

"In part, this was the plan: to bring costs down," says Jiménez, pointing out that the effects of such a sly economic strategy are naturally limited. "With the unemployment levels we have, internal demand is in the doldrums. There is not going to be real growth for a good while."

And yet, optimism prevails -- at least in the world of high finance. "We are optimistic on the euro periphery as a whole and Spain in particular," Berenberg Bank economist Robert Wood recently told Bloomberg Businessweek. "The country has made big structural changes," he added. "It's been engaged in a lot of deficit reduction, business sentiment is improving and unemployment is probably close to a peak." Berenberg Bank forecasts that Spanish growth could be as high as 1.4 percent in 2014.

The Popular Party government in Madrid is somewhat less sanguine, predicting 0.7 percent growth next year, while the International Monetary Fund is still insisting on a nearly flat 0.2 percent.

So whose portrait of the Spanish recovery bears a closer resemblance to reality? In a way, both capture elements of the truth: Investment is pouring into the country, but it's not making a lot of difference for the vast majority of Spanish citizens.

According to financial analyst Juan Ignacio Crespo, the continued inflow of foreign capital into a more competitive Spanish labor market represents the way forward. Crespo acknowledges that there's been a dramatic transformation since Spain was forced to accept an EU-sponsored bailout for its troubled banking sector in June 2012 (for starters, the risk premium -- the added profit investors demand for holding Spanish sovereign debt over the rate on the German bund -- is now stable at around 230 basis points compared to the unsustainable levels of 600-plus in the summer of 2012.) But he argues that more investment is needed to prevent Spain from becoming choked by its ballooning public debt, which will probably reach 100 percent of GDP next year. Here another factor enters into play: whether or not the EU will cut Spain some slack in the coming years on its timetable for bringing its budget deficit back under the European limit of 3 percent of GDP.

"The fact that Brussels softened up on the 2013 target [6.5 percent of GDP] gave the Spanish economy some breathing room this year. The same will happen in 2014, with a target of 5.8 percent which is not all that strict. From then on, the Spanish government and the European Commission will face another difficult dilemma: If deficit targets are relaxed for two additional years, the debt-to-GDP ratio will soar to 112 percent. If they are not relaxed, the economy will relapse into a recession," said Crespo, the author of Las Dos Próximas Recesiones (The Next Two Recessions).

The only way out of this dilemma, according to Crespo, is an "influx of foreign investment, especially if it comes in the shape of businesses settling down here or expanding their Spanish operations." Pointing out that Spain has a qualified workforce which is cheaper than that of its rivals -- he cites average labor costs per hour of 21 euros in Spain, compared to 30 euros in Germany -- Crespo concludes that "the key to growth does not just rest on the public sector adjusting its spending, or on exports doing as well as they have so far."

On strong exports and buoyant tourism, Spain's balance of payments registered its first surplus in the first half of the year since 1997. At the same time, services -- including those of engineers, architects or consultants -- are increasingly driving the export boom, reaching one third of the total in 2012. Even with falling labor costs, Spain cannot hope to compete with China or other emerging nations on the factory floor. But a well-trained Spanish engineer with low salary expectations is increasingly being seen as an unbeatable deal. The fact that more young people are now in the education system -- many returning to the classroom after being tempted away by easy-to-find work in the boom years -- will enlarge Spain's skills pool further: in 2011, 62.4 percent of those between the ages of 15 and 24 were studying, above the European average.

But many young people are still abandoning Spain for greener pastures. Clearly, the length of the unemployment lines provides ample motivation to move away, with some 400,000 more Spanish adults living abroad now than in 2008, a rise of 33 percent. But the ultra-phlegmatic attitude of the prime minister has surely added a touch of nightmarish urgency for many. Elected in late 2011 with a rare absolute majority, Rajoy has watched as unemployment passed the 5 million barrier -- and then the 6 million barrier at the start of 2013 -- before improving slightly in the past six months. Cue a frenetic tour of employment offices or the unveiling of a national plan to get the youth into work? Not Rajoy.

Joblessness records, a judicial investigation into widespread corruption within his Popular Party, and now revelations of U.S. espionage against Spain are among the many burning issues met with stony silence or guarded observations by the conservative leader. Even on the day Spain was bailed out by the European Union, Rajoy chose not to pronounce in public, instead attending a soccer match.

Rajoy has seemingly made the calculation that his majority-guaranteed four-year tenure will be long and arduous, and any attempt to burn brightly amid so much gloom will be futile. In recent days, he has pushed out junior officials and ministers one by one to make delicate inquiries into the NSA's massive espionage activities in the hopes of remaining relatively anonymous amid the harmony of European outrage; the plan is still to stage-manage Rajoy's first visit to the White House after two years in office. And the prime minister will need a boost ahead of his third year in office, when the PP's performance in European elections will determine whether or not he is still the party's horse in 2015.

The hope that 2015 will mark the culmination of a genuine recovery is being cherished through what are still very lean times, with Economy Minister Luis de Guindos predicting growth of over 1 percent for that year. Nonetheless, Rajoy signaled this week that the economy had been shored up, and the government's task now was to extend the benefits of this work to the majority of Spaniards. The danger is that amid the noise of so much back-slapping in the ministries and those champagne corks over at the stock exchange, the sound of a new storm brewing may be missed.

Since taking over in 2011, the PP has mocked Rajoy's predecessor, Socialist José Luis Rodríguez Zapatero, for being unprepared for the 2008 global financial crisis -- and now claims to have come up with a better economic model. Foreign investors, it seems, must now be the judge of that.

AFP PHOTO/ JORGE GUERRERO

Dispatch

The Last Refugee Camp

Could the world's go-to strategy of warehousing the displaced finally be changing? 

MAFRAQ, Jordan — Nearly every evening, the road at the northern edge of the Zaatari refugee camp is crowded with people waiting for buses that will take them home -- home being Syria. Sometimes, there are dozens waiting to board; at other times, there are hundreds. They have many reasons for leaving, but the dust and squalor of camp life loom large on the list. Refugees waiting here say they fled Syria when their homes or neighborhoods were bombed, but, after trying to live in Zaatari, they are eager to go back.

"Even camels couldn't manage the night here," one man says. "We're respectable people. We should be treated like people, not like camels."

Put simply, refugee camps as we know them are a terrible idea. When masses of people flee across a border, camps often seem like the necessary response. They make it easier to count refugees and give them emergency shelter, food, and medical care, and they soothe the security and economic worries of a host country. That's why, since mid-2012, the government of Jordan and the United Nations' refugee agency, UNHCR, have settled roughly 120,000 Syrians in Zaatari and placed thousands more in smaller camps and holding centers around the country. Turkey has placed some 200,000 people in government-run camps. Iraq, too, has resorted to camps.

Yet years of research -- along with the stories of people like those waiting to leave Zaatari -- show that camps are at best problematic, and at worst dehumanizing and dangerous. Refugees in camps face health risks like malnutrition and epidemics. Camps are often breeding grounds for violence. They can be overtaken by criminal gangs or spark riots; in conflict situations, they can become militarized. "If you want to find an excuse for family breakdown, for increases in family violence, gender-based violence, or extremism, then keep working to stick people in camps," says Dawn Chatty, director of the Refugee Studies Center at Oxford University. 

Camps are supposed to be temporary, but all too often, refugees end up spending years, even generations in a kind of limbo. "If it is true that camps save lives in the emergency phase, it is also true that, as the years go by, they progressively waste these same lives," a UNHCR executive committee wrote in 2004.

Surely there's a better way.

Over the years, attempts have been made to find a superior means of assisting refugees, but, in general, they have foundered. This is due largely to the bargaining and gamesmanship that go on among international donors who provide aid, organizations like UNHCR that distribute it, and governments of host countries where refugees have fled.

Yet today, in Jordan, UNHCR, donors, and, to some extent, the government are trying to do things differently. There are two basic strategies being tried and debated: avoid camps entirely, or make them more like real cities, connected to the country's urban landscape. If either of these ideas takes hold and produces success stories, it could change the lives of thousands of Syrian refugees -- and, potentially, the lives of future populations forced to flee their homes.

Idea 1: Get rid of camps

One strategy that is gaining currency, and that has prompted a major change in UNHCR policy, is to let refugees live in existing cities.

Typically, refugee settlements that take root in cities are informal and receive little protection. Yet many refugees say they prefer the autonomy and opportunities that such situations offer. Host governments, meanwhile, tend to be wary of "urban refugees" because they use local services like roads, water, electricity, and schools, and they look for work in local markets. The primary cost of supporting them thus falls on the government that has opened its borders. The U.N. and foreign powers may promise to help, but accepting that promise is a gamble: It means trusting that a country won't be left providing services to refugees when the world's attention moves on to new disasters.

In developing nations with limited budgets, these concerns are very real. Add to this the fact that it's politically toxic for a government to be seen helping refugees when its own people are facing economic hardships, and there is a strong incentive for a state to make refugees someone else's problem. So camps, for which the international community is usually responsible, are built. "Camps have been a means whereby refugee hosting countries are kind of able to hold donor states to account and put a gun to their head," says Jeff Crisp, a longtime head of UNHCR's evaluation and research department and one of the world's leading researchers on long-term refugee crises. "Once you go down the urban route, they lose that leverage."

For years, Crisp adds, UNHCR policy was also hostile to urban refugees because of the problems they've caused with local governments. This began to change during the last Middle East refugee crisis, from 2007-2010, when hundreds of thousands of Iraqis went to Jordan and Syria. It was called a "stealth" crisis because the refugees arrived slowly and typically through regular border crossings. For a long time, few realized that many of the Iraqis were not going to go back home. By the time this realization did happen, it was already too late for camps.

Humanitarian organizations scrambled to cope with a situation they weren't accustomed to. Crisp explains that, in cities, refugees are "scattered throughout, they're in different communities. You can meet some refugees, but you can never be quite sure whether you're getting to the most vulnerable or not." Meanwhile, the governments of Syria and Jordan claimed that the Iraqis represented a huge economic burden (a claim some economists regarded with skepticism).

In the end, all sides settled for a development-based solution. This wasn't what the international community calls "local integration," whereby refugees get full rights and legal status, perhaps even citizenship, in the country to which they have fled. Rather, it was a provisional fix: The host nations continued to accommodate refugees outside of camps and offer them limited access to public services, in exchange for international development assistance. This included hundreds of millions of dollars for schools, hospitals, water companies, and other institutions.

There were some positive results. Crisp recalls asking school officials in Damascus how Syrian parents reacted to the influx of Iraqi refugee children. "At first they were very concerned," he says. "But then, the international community started supporting the Syrian education system... and the Syrian parents were saying, ‘Oh, it's good we that got the refugees, it's actually improving the quality of the schools.'"

In Jordan, the solution was more controversial. The international aid provided was substantial, but some researchers (including this author) have argued that much of it went toward development projects that had little to do with Iraqi refugees. Meanwhile, some in the Jordanian government still claim their country was never fully compensated for taking in the Iraqis.

Despite mixed reactions, the project overall was seen as more successful than previous efforts to assist urban refugees. It helped that donors showed renewed interest in such refugees because expanding local services, it turns out, can be cheaper than building camps from the ground up and sustaining them. As a result, the Iraqi refugee crisis helped prompt a major shift in position by UNHCR: In 2009, Crisp was asked to write a new policy on urban refugees, which affirmed their right to live in cities as well as UNHCR's commitment to aiding both the refugees and their host nations.

Thanks to the recent experience with Iraqi refugees and UNHCR's new stance, when Syrians began quietly trickling into Jordan in 2011, the government did not immediately insist that camps be built. Instead, the military took in newly arrived refugees, gave them tea and a hot meal, and brought them to holding centers in the northern town of Ramtha. All it took to get them released was a Jordanian citizen acting as a guarantor of their whereabouts -- a process called "getting bailed out." Tens of thousands of bailed-out refugees soon took up residence in Jordanian cities, and the government offered them access to schools and free care in public hospitals.

Today, Jordan hosts at least half a million Syrian refugees in its cities, perhaps more. The country has requested long-term development aid, acknowledging that Syrians may remain in the country for years; some aid has already appeared, and more is being discussed.

But this bargain is under strain: Jordan has received far less money than what it says it needs to expanding its infrastructure to accommodate the Syrians, and it is determined not to let aid become a back door for "local integration." "We want the international community to support and enhance the capacity of Jordan to temporarily absorb those people... based on the premise and the assumption that, once things settle down in Syria, those people should go back," says Ibrahim Saif, Jordan's minister of planning. 

If Jordan's concerns can be worked out and the current bargain maintained, or even expanded upon, Jordan could set a strong precedent for how to accept and take care of urban refugees. If not, Syrians living in Jordan's cities could see their freedoms diminish significantly.

Idea 2: Build real cities

Even as it continues to host urban refugees, Jordan has also constructed a camp. UNHCR officials say Jordan began to insist on a contingency plan as Syria's war worsened and the number of refugees mounted. On July 31, 2012, Zaatari opened, and some now say it was a prescient move: By 2013, more than 50,000 new refugees were arriving in Jordan every month, sometimes more than 4,000 in a single night. But already, the camp is in dire need of change.

Zaatari is still home to only a fraction of the refugees in Jordan -- fewer than one in five -- and some Syrians continue to be "bailed out" to live in cities. Yet the camp's costs represent an enormous portion of UNHCR's overall budget for Jordan: The 4.1 million liters of water Zaatari uses every day, for instance, has to be brought in by tankers, at a cost of around $4 million a year, according to UNICEF water specialist Kitka Goyol. Wastewater has to be trucked 35 kilometers to the nearest treatment plant, at a cost of $2-3 million a year.

Despite all the spending, Zaatari's conditions are troubling. Decrepit communal bathrooms often don't work, so families try to build their own -- but sewage leaks into the streets. Even after millions of dollars have been spent on weatherproof caravans, thousands of families still live in tents, vulnerable to raging dust storms, heat, cold, and flooding. The camp's inhabitants complain bitterly about the long lines they must stand in for basic household goods or medical care that they feel is inadequate. And, if Zaatari endures -- as is likely -- research on camps shows that these conditions will only get worse. 

Kilian Kleinschmidt, who manages Zaatari for UNHCR, knows the situation isn't tenable, and he hopes to change it. His position is informed by experience: Kleinschmidt started working with refugees in 1992 as a UNHCR field officer in the Kakuma refugee camp in Kenya. Two decades later, his son began working in Kakuma. "[He was] fixing the same water systems that I had set up, which are still managed the same way as they were managed 21 years ago," Kleinschmidt says.

He is determined that the same thing will not happen in Jordan. In his view, camps must develop into sustainable, city-like systems, connected to the urban fabric and economy of a host country.

Refugees themselves have tried to turn Zaatari into something approximating normal life, expanding their UNHCR-provided tents and trailers, and building shops and restaurants along the camp's main streets. Yet much of the economic activity that refugees have generated goes into black markets rather than the Jordanian economy, and this feeds the growth of criminal gangs. Jordanian smugglers buy aid-issued food and goods from refugees and carry them out of the camp, undercutting local markets. Local bosses also control the trade in stolen electricity, hijacked water tankers, and scrap metal and construction materials.

This sort of "vandalism" and "theft," in Kleinschmidt's words, represents a "total clash of understanding [about] what this place should look like." That clash has played out in refugees holding demonstrations and rioting, or even threatening or attacking aid workers.

Since his arrival in March, Kleinschmidt has been trying to ameliorate these problems. His first goal was to get refugees and aid agencies to talk to each other, to reduce the number of disputes and violent incidents between them. That, by and large, appears to be happening. The more ambitious -- and controversial -- goal now is to build sustainable systems in the camp that can run with less external aid. Eventually, Kleinschmidt says, Zaatari, which already holds Jordan's fourth largest concentration of people, should be connected to the country's official economy, becoming a driver of trade and industry.

The primary examples of what needs to change, Kleinschmidt explains, have to do with water, sanitation, and electricity. For roughly the same cost as trucking in water for one year, for instance, aid agencies could build a regular, municipal-style water system for the camp. Then, they could add water meters, which would measure consumption. Large consumers like shopkeepers could then be asked to pay for water service. Later, inhabitants with income could also pay for their water, while the U.N. could keep subsidizing it for the most vulnerable families. Similar models could be used for sewage and electricity.

Public transportation, road improvements, and housing upgrades are also on Kleinschmidt's to-do list. And legalizing and regulating trade into and out of Zaatari, he says, would allow the camp to contribute more to Jordan's economy. In the long run, Kleinschmidt believes these changes could benefit both refugees and the Jordanian communities around the camp. "We are building up something that will become one of the most innovative, most modern refugee camps in the world," Kleinschmidt says.

Jordan has accepted some limited moves toward making Zaatari meet Kleinschmidt's vision, and donors are looking for funds to support the changes. For example, Goyol from UNICEF says that agency has come up with about $3 million to start upgrading the water distribution system. In addition, Jordan's water ministry has asked donors to fund containerized sewage treatment units for the camp. Goyol estimates those units could pay for themselves within a year by reducing the cost of removing waste.  

These plans are still in the early stages, and there are challenges. Turnover of refugees creates a problem for setting up infrastructure and building community, and it's hard to get donors to fork over money for development projects with day-to-day costs of maintaining the camp already being so high. Jordan, too, balks at change that carries the specter of permanence, in no small part because many local people are frustrated by the refugees' presence.

Thus, the dual efforts to host refugees in Jordan's cities and make Zaatari more like a real city face uphill battles. For these efforts to succeed, donors will have to see the value of long-term investments in the infrastructure and services of Jordan broadly and Zaatari specifically. Skeptical Jordanian officials will also have to be convinced that the international community is serious about helping them, while not trying to stick their country with permanent immigrants.

These are not small tasks. But the refugee programs and the people running them in Jordan today are some of the most progressive in recent memory. And, with Syrian refugees likely to be a presence in Jordan and other countries for many years, changing how this crisis is handled now could set an important -- and vastly improved -- example for the future.

Jeff J Mitchell/Getty Images