In retrospect, the ongoing revolt in Tunisia seems almost inevitable. There were so many reasons for anti-government street action: high youth unemployment (a 31 per cent rate), a corrupt ruling family (the president’s wife was widely known as “shopper-in-chief”), and extreme political repression (the World Bank says only Syria is harsher in the region). But hindsight is quite different from foresight.
Equity investors did not expect anything untoward. The Tunis stock market index rose 19 per cent in 2010, its eighth straight positive year. The rating agencies accepted what S&P, in April 2010, called the “gradual pace” of political liberalisation. A triple-B (investment grade) rating reflected a political system that “has yielded political and social stability”. In September, the World Bank wrote of “remarkable progress on equitable growth, fighting poverty and achieving good social indicators”.
The general failure to predict the Tunisian political tsunami could spring from inattention. The country is very small, lacking commodity wealth, and with a gross domestic product of only $40bn (about the same as Brussels). More likely, though, the experts missed the imminent collapse in Tunis for the same reason that similar upheavals, such as in Tehran and Moscow, came as a surprise: radical political change is unpredictable. Unpopular governments can stay in power for years despite good reasons to fall. They can also change and become more popular – or suddenly fail.
Investors have responded to Tunisia’s sudden change of course by widening credit spreads throughout the region. Their concern is more plausible than the optimism of experts predicting a Middle Eastern democratic flowering. There is another lesson, as applicable to rich as to developing countries. Governments can live for years with clear weaknesses that can suddenly become fatal flaws. Buyers of the long-term sovereign debt of fiscally irresponsible countries might ponder that one.
E-mail the Lex team in confidence