Tunisia seeks next IMF tranche as spending cuts spark protests

TUNIS Wed Jan 8, 2014 2:25pm EST

Doctors and resident doctors shout slogans during a demonstration against the government's new draft law that will require healthcare professionals to work at public hospitals in rural areas for an added three years before they graduate, outside the Constituent Assembly headquarters in Tunisia January 7, 2014. REUTERS/Zoubeir Souissi

Doctors and resident doctors shout slogans during a demonstration against the government's new draft law that will require healthcare professionals to work at public hospitals in rural areas for an added three years before they graduate, outside the Constituent Assembly headquarters in Tunisia January 7, 2014.

Credit: Reuters/Zoubeir Souissi

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TUNIS (Reuters) - Tunisia's government, under pressure from protests over public spending cuts, said on Wednesday it had done enough to persuade the IMF to approve a $500 million loan tranche at meetings later this month.

Strikes started in the southern and central towns of Kasserine, Thala and Gafsa on Tuesday and spilled over to the capital Tunis on Wednesday, after calls from transport and agricultural unions to protest over a vehicle tax hike.

Riot police fired tear gas in some southern towns.

International lenders have been worried about Tunisia's delayed political transition to full democracy after a popular uprising against Zine el-Abidine Ben Ali in 2011 and have also pressed its leaders to bring government spending under control.

But Tunisia's ruling Islamists, who have reached a deal with the secular opposition to hand power shortly to a caretaker administration, pending elections, hope that they have persuaded the IMF to approve the $500 million payment.

The tranche is the second of a $1.5 billion credit agreed at the start of 2013.

"The IMF's conditions are to reach a political agreement to finalize the transition, and keep our deficit under control. We have so far taken the main necessary measures," finance minister Ilyas Fakhfakh told Reuters on Wednesday.

"It is on the right track. There is a meeting on January 29, and we expect to get that tranche after that."

SOCIAL PRESSURES

But government plans to meet IMF and the World Bank requirements are already threatening the fragile stability of the North African country.

With the budget deficit expected to jump to 6.8 percent of gross domestic product for 2013, Tunisia's 2014 budget includes measure to raise one vehicle tax by 25 percent and to add another tax on big cars.

Riot police fired tear gas to disperse several hundred protesters in several towns in the south, local media and the state news agency reported. Two police officers were injured in the clashes, TAP state news agency said.

"I was surprised when I went to pay my taxes. I can barely earn 10 dinars ($6) per day, and with those new taxes I am losing almost another dinar," Samir Bahri, who drives a taxi between the capital Tunis and the northern city of Bizerte.

Bahri joined around 100 protesters outside the National Assembly where lawmakers were voting on the formation of an electoral commission, the final step before the Islamist-led government hands over to the caretaker cabinet.

The finance minister told reporters the reforms would add a small extra annual cost to vehicle taxes, a minor but necessary increase that would help the government.

The rising cost of living is a major complaint for many Tunisians who say they have seen little economic benefit from the revolution that ousted their autocratic leader in 2011 and started a wave of Arab Spring uprisings.

Tunisia's annual inflation index rose to 6 percent in December after remaining steady for the last three months at 5.8 percent. The rate did not drop below 5 percent in 2013.

After months of crisis, Tunisian parties have already named a new transitional prime minister, Mehdi Jomaa, an engineer and former minister who will appoint a non-political cabinet to rule until elections later this year.

(Reporting by Aziz El Yaakoubi; writing by Patrick Markey; Editing by Larry King/Ruth Pitchford)

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