(Adds context, background)
AMMAN, June 5 (Reuters) - Jordan’s King Abdullah tasked a former World Bank economist on Tuesday with forming a new government and called for broad talks on a planned income tax law that has provoked the country’s biggest protests in years.
The king appointed Harvard-educated Omar al-Razzaz after accepting Hani Mulki’s resignation as prime minister, attempting to defuse public anger over IMF-driven reforms.
Reports on Monday of Razzaz’s impending appointment did not entirely quell the protests. About 2,000 people rallied overnight demanding the tax law be withdrawn.
Price increases, after a steep rise in general sales tax and the abolition of bread subsidies earlier this year, have brought thousands of people onto the streets of Amman and other parts of Jordan in recent days. This has shaken the U.S. ally which has remained stable through years of regional turmoil.
The king said the new cabinet should review the tax system and immediately start a dialogue over the draft income tax law, which protesters have staunchly opposed. He said political parties, unions and civil society groups must take part in the talks.
“Your government’s priority must be to launch the potential of the Jordanian economy ... to restore its ability for growth and providing job opportunities,” he said in a letter designating Razzaz.
The monarch, widely seen as a unifying force, addressed the protesters’ demands. He said price rises had placed a burden on Jordanians and called for improving services, blaming regional instability for hampering the sluggish economy.
Razzaz served with the World Bank in both Washington and the Mideast region, and was education minister in the outgoing government.
Officials said he had been an opponent of reforms that hurt the poor. His appointment nevertheless sends a message to foreign donors that Jordan will press ahead with reforms, though in a gradual way, they said.
ECONOMIC REFORM CALLS
The International Monetary Fund (IMF) approved a three-year arrangement with Jordan in 2016 to support economic and financial reform, aiming to lower public debt and encourage structural change.
Mulki’s government said it needed more revenue for public services, arguing that the tax reforms would reduce social disparities by placing a heavier burden on high earners and leaving lower-paid state workers relatively unscathed.
But public anger has grown over some of the measures driven by the IMF. There was also unrest in 2012 when the IMF told the government to lift gasoline prices.
Jordan has backed down on reforms in the past, fearing a social backlash. Until Mulki took office, governments had repeatedly pushed back the increase in bread prices and tax changes.
The country experienced protests to demand political reforms during the 2011 Arab uprisings, and has navigated years of instability at its borders, including wars in Iraq and Syria and conflict in the Israeli-occupied West Bank. It now hosts close to 700,000 Syrian refugees.
The regional crisis has affected the economy of the Arab nation already poor in resources. Jordan’s unemployment rate stands at 18.4 percent, according to government statistics.
Police said on Monday the protests remained under control, though officers had detained 60 people in recent days. (Reporting by Ellen Francis, additional reporting by Angus McDowall; editing by John Stonestreet and David Stamp)
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