BRIEF-Moody's says assigns Aa2 to $850m NYC GO bonds, Fiscal 2017 Series B
* Moody's assigns Aa2 to $850m NYC GO bonds, Fiscal 2017 Series B; Outlook stable Source text: (http://bit.ly/2gKbRjg)
* Soaring energy and food costs force recourse to IMF
* Subsidy cuts ignite protests; more price rises to come
* Despite king's reforms, Islamists to boycott election
* Jordan tries to ride out turmoil in Arab neighbours
By Suleiman Al-Khalidi and Alistair Lyon
AMMAN, Nov 29 Violent protests that shocked Jordan this month have mostly subsided, but unprecedented chants for the "fall of the regime" suggested a deeper malaise in a kingdom so far spared the revolts reshaping the Arab world.
Anger over fuel subsidy cuts undoubtedly drove the unrest, in which police shot dead one man during a confrontation at a police station. The government's planned electricity price rises starting next year may well ignite more popular fury.
King Abdullah has made some constitutional reforms and his counsellors say turnout at a parliamentary poll in January will test public support for the pace of political change amid an acute financial crisis that has forced Jordan to go to the IMF.
However, the model that has kept Jordan relatively stable for decades is cracking, nowhere more so than in the tribal East Bank provinces long seen as the bedrock of support for the Hashemite monarchy installed here by Britain in 1921.
The formula reinforced after the 1970 civil war between the army and Palestinian guerrillas - a defining national trauma now airbrushed from public discourse - broadly gives East Bankers jobs in the army, police, security services and bureaucracy.
Jordan's Palestinian-origin majority dominates private enterprise, but does not play a commensurate political role, in part because electoral gerrymandering curbs its voting power.
Although the fissure between the two communities is blurred by inter-marriage, long co-existence and, at least among the elite, business ties, it is likely to haunt Jordan as long as the wider Israeli-Palestinian conflict remains unresolved.
Jordanians of all stripes are fearful of the insecurity that stalks their neighbours, but the money that kept discontent in check across a fragmented society is simply no longer there.
An influx of 240,000 refugees from the Syrian conflict next door has further strained the resources of a country of seven million that has almost no oil and precious little water.
"Reform is genuinely difficult because you need to change the economic as well as the political rules," said a European diplomat. "In the past the tribes gave their support in return for jobs and money. Now that this is no longer affordable, they are shouting things like 'We won't pay for your corruption'."
Palestinians, while also hard hit by the austerity measures, have mostly laid low to avoid political flak.
In Kerak, a tribal hilltop town caught up in price protests earlier this month, morose shopkeepers await customers in the narrow market streets below the imposing Crusader citadel.
"Everyone who feels the pinch should go out in the street to express his views peacefully," said Hani Herzallah, 41, a barber with four children. He said he had joined the protests against fuel price rises that included a 54 percent increase in the cost of gas cylinders most Jordanians use for cooking and heating.
At a shop selling live chickens from wire cages, Tahseen al-Tanashat, 64, said he had just drawn his 200 dinar ($280) pension, but only had 50 dinars left after paying his bills.
Tanashat, on a state pension since he retired as a guard 31 years ago, said two of his three sons were soldiers. "I just want my 19-year-old still at home to get a job in the army."
For all their complaints, Kerak, 90 km (56 miles) south of Amman, has been lavished with state funds, thanks perhaps to powerful Majali and Tarawneh tribal figures who have occupied top positions in the government and military for decades.
An illuminated four-lane highway leads to the town of 65,000, passing a power station and an industrial zone that is far from bustling. Kerak boasts a major university, a new public hospital along with training colleges, and a palace of justice.
But jobs are scarce. A government hiring freeze is meant to alleviate the public sector pay and pension burden on a state treasury long reliant on aid from Gulf Arab and Western donors.
A U.S. diplomatic cable published by WikiLeaks said Jordan's "bloated civil service and military patronage system" soaked up 83 percent of the 2010 budget, despite planned spending cuts.
The economy has hit even stormier seas since then. Egypt's new rulers have sharply reduced cheap gas supplies to Jordan, which imports 97 percent of its energy and which has suddenly had to pay an extra $2.5 billion a year for fuel.
This month's protests were the most violent of several bouts of unrest in Jordan since Arab uprisings erupted nearly two years ago and toppled autocrats in Tunisia, Egypt and Libya.
Those in Kerak and other East Bank towns were organised by local opposition movements known collectively as Hirak, whose grievances focus on corruption, poor services and unemployment. They also resent privatisation and other market reforms intended to reduce state spending - from which they benefit.
"Hirak is not driven by democracy, but by a sense of entitlement," said Mustafa Hamarneh, a social scientist running for parliament in the provincial town of Madaba. "It has not developed from spontaneous mobilisation into a national political movement. It is parochial, with personalised demands."
Jordan lacks credible political parties, with the exception of the Muslim Brotherhood's Islamic Action Front, whose power base is mostly, but not exclusively, urban and Palestinian. In some cities Islamists have developed tentative links with Hirak.
The Brotherhood, which has a track record of moderation since its Jordan branch was licenced in 1946, plans to boycott the January election, citing rules it says are meant to keep it from securing the biggest bloc in the 150-seat assembly.
The authorities accuse the Islamists, emboldened by Arab uprisings that led to election wins for their counterparts in Egypt and Tunisia, of fomenting unrest and of refusing to join a reform dialogue launched by King Abdullah in early 2011.
"Apparently the Muslim Brotherhood decided they stood to get more gains if they stayed in the streets," said a senior official source, speaking on condition of anonymity.
He acknowledged that the timing of the subsidy cuts, just as winter and an election were approaching, was far from ideal, but said there was no choice because Jordan risked "insolvency".
In return for a $2 billion standby arrangement agreed in August, the International Monetary Fund wants public sector reform and action on subsidies, including electricity tariffs.
Gulf donors such as Saudi Arabia, which rescued Jordan from an earlier crunch point with $1.4 billion a year ago, have held off from giving direct budget support so far this year, though Riyadh and Kuwait have sent $250 million each for projects.
Speculation about the reasons ranges from heavy spending by Gulf nations to stave off disaffection at home, concern about corruption in Jordan, and more pressing regional priorities - or even irritation that Amman had factored assumptions about Gulf aid into its IMF presentation without asking the donors first.
Saudi Arabia and Qatar may also want Jordan to be more active in the Syria crisis. "They would essentially like to see Jordan becoming the southern equivalent of Turkey in supporting the Syrian opposition," said Amman-based analyst Moin Rabbani.
"The Jordanians however ... prefer to play a less visible role and exercise it more covertly."
The survival of a vengeful Bashar al-Assad or a triumph for his Islamist-dominated foes would both pose dangers for Amman.
Jordan, valued by the West for its peace treaty with Israel and for its role as a stable buffer in a volatile region, still has an ambassador in Damascus, in line with its usual policy of walking a careful line between its more powerful neighbours.
When Arab revolts began last year, the king, reigning since his father Hussein died in 1999, renewed a political reform drive opposed by conservatives which he had set aside to focus on economic liberalisation aimed at expanding the middle class.
"The results remain disappointing," wrote Julien Barnes-Dacey in a paper for the European Council on Foreign Relations. "Despite changes to the constitution, few restrictions have been placed on the king's direct political authority."
King Abdullah, who has replaced his cabinet five times in the past two years, can still appoint and dismiss governments, although he has promised to consult parliament on choosing the next prime minister, who must then win a confidence vote.
"Parliament must become its own master and not get dissolved by the king in two words," said Wisam al-Majali, a Hirak activist in Kerak. "Now if even the best parliament digs deeper on corruption, it is dissolved the next day."
Another Kerak activist, Moaz al-Batoush, said an empowered parliament would obviate the need for street protests against "stupid" decisions that risked igniting revolutionary demands.
"Some people angered by the price rises reacted by calling for the downfall of the regime," he said, adding that this had never been a Hirak demand. "There is a crisis of confidence."
The official source defended the reforms, which include creation of an independent electoral commission, saying an overwhelming majority of Jordanians opposed removing powers from a monarch seen as a safeguard amid competing interests.
He said re-drawing electoral boundaries was not easy, given resistance from now over-represented East Bankers - Amman gets only a fifth of seats in parliament, despite being home to roughly half Jordan's population, many of them Palestinians.
The mood is sour among Palestinians in the Hussein refugee camp, now a scruffy built-up neighbourhood of the capital.
"These price rises have slapped people in the face," said Abdul-Moneim Abu Aisha, 52, a butcher dragging on a cigarette as he sold small gobbets of meat in a tiny neon-lit shop.
In a market street where stalls piled high with vegetables jut out into the snarled traffic, people said only minor fuel price protests had occurred in the camp. Some voiced suspicion that even these were the work of outside provocateurs.
"The Palestinian camps will move only when the Jordanian tribal cities move and when the whole country rises up. If the camps rise up on their own they will be put down brutally," said a carpenter, who gave his name only as Abu Omar.
"We are targeted as Palestinians," he said, while having his hair cut. "The first thing they ask when you enter a police station is about your original hometown. But I'm a Jordanian who served in the army, and if anything happens to the country I will be the first to defend it, so why ask where I come from?"
With East Bankers and Palestinians alike feeling aggrieved, tensions might calm if the January election produced a new-look parliament and a government with the popular legitimacy to take tough decisions, but the electoral rules and the planned boycott of the vote by Islamists and others make this unlikely.
While the 50-year-old king seems confident his roadmap is the best route for a divided society, not everyone is so sure.
"Jordan needs an inclusive political reform to cope with the horrendous economic challenges," the European diplomat said.
"What we have is a baby step. The democratic deficit remains and has not been narrowed at a time when you need public confidence to deal with the challenges and the corruption."
* Moody's assigns Aa2 to $850m NYC GO bonds, Fiscal 2017 Series B; Outlook stable Source text: (http://bit.ly/2gKbRjg)
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