* Ruling ex-rebels call for belt-tightening patriotism
* Alarmed donors, China press for oil deal with Sudan
* Hardship will not be equal in world's newest state
By Pascal Fletcher
JUBA, May 28 (Reuters) - South Sudan's citizens who paid in blood for their
independence in a long liberation war are being told freedom carries its own
price - in hardship.
An oil shutdown from January by the former bush rebels who now run the
world's newest nation has strangled the flow of dollars into an economy that
produces almost nothing else, and sent the South Sudanese pound tumbling
against the greenback.
This has hiked the costs of everything from fuel to cooking oil, rice,
charcoal and bananas. It is forcing the government to cut education and
health spending in a state whose development indicators were already near
the foot of world rankings.
"We don't know what will happen. We only know everything will be very hard.
We are going to suffer," said Hamza Salim, 22, at a charcoal stand in Juba's
Konyo-Konyo market. Citizens say prices have tripled since the start of the
year.
When it became the world's newest nation in July 2011, South Sudan inherited
three-quarters of the previously unified Sudan's oil output. Oil is the
lifeblood of north and south.
The abrupt oil shutdown - made by the ruling Sudan People's Liberation
Movement (SPLM) in the heat of a dispute with northern neighbour Sudan over
oil export transit fees and border demarcation - closed off 98 percent of
South Sudan's revenues, jolted both economies and stunned foreign donors.
It was followed in April by border fighting. The African Union and United
Nations scrambled to halt a slide into all-out war.
The oil shutdown is defiantly presented by SPLM leaders as a new phase of
their nationalist struggle to wrest complete independence, including
economic freedom, from former 'coloniser' Khartoum.
"Today, we, the world's youngest nation, are able to prove we are capable of
defending our independence," said SPLM Secretary-General Pagan Amum, who is
also South Sudan's chief negotiator with Khartoum. The new government still
spends more on defense than on education and health put together.
But with experts warning of state collapse, the message being delivered
behind closed doors to South Sudan's leaders by Western donors is that the
heroic narrative of survival without oil is a fairy tale and that they must
parley with Sudan.
"It's pie in the sky ... Everybody is telling them 'Do the deal' (with
Sudan). Plan B? There isn't one. State shutdown," said one foreign
development expert, who asked not to be named.
Under pressure too from China, the main oil investor in both states, Sudan
and South Sudan have agreed to resume negotiations on Tuesday to try to
settle their differences.
With prospects of a lasting accord still very uncertain, President Salva
Kiir is asking South Sudanese to tighten their belts and grow food to
replace imports as his government looks to leverage subsoil oil reserves to
obtain bridging loans.
WAR ECONOMY
The SPLM is counting on targeted spending cuts and foreign loans and aid to
keep South Sudan on its feet until planned alternatives pipelines can be
built in 2-3 years to carry the crude to Kenya or Ethiopia, instead of
through Sudan.
Officials call it "economic war". The price for ordinary South Sudanese can
be gauged in long lines of vehicles and bikes outside petrol stations
seeking scarce fuel and shoppers in markets complaining of rocketing prices
for food and essentials.
A bag of charcoal, the basic cooking fuel, has gone from 50 South Sudanese
Pounds (SSP) to 75 in a month. A bucket of onions now costs 200 SSP, up from
80 two months ago.
Since the oil shutdown, the pound has slipped to around 5 SSP to the dollar
from 3.55, squeezing businesses, supermarket and restaurant owners and even
small traders who have to import everything in dollars, trucked in from
Uganda and Kenya.
"All the costs are higher. To convert back to dollars, you lose," said Ali
Hodroj, a Lebanese businessman who owns the Phenicia supermarket, one of
Juba's largest.
"This is war. It's no less war than being bombed from the air," said
Professor John Akec, Vice-Chancellor of Northern Bahr El Ghazal University,
recalling Sudan's air bombings of the south which were a feature of the
civil war and have persisted.
But the prospect of months, even years, of austerity has triggered a fierce
debate inside and outside South Sudan between those who say the "baby"
nation can survive the financial famine, and others who say it cannot or
should not have to.
"Just as people are sitting back and expecting a peace dividend from
independence, we are demanding more from them," said South Sudan's
Undersecretary for Culture Jok Madut Jok.
He faults the national government for communicating the oil shutdown
decision poorly and failing to prepare for it.
"Will we really be able to run our economy for three years without this
oil?," asked one anxious caller to the "Wake Up Juba" Radio Show broadcast
by private Radio Bakhita.
"WE CAN MAKE IT"
Some government officials blithely assure reporters that as two-thirds of
the population are peasants and cattle-herders, isolated from the urban cash
economy, who can survive on little, they will hardly feel the austerity
crunch, if at all.
"South Sudan will be able to negotiate and finance the 'gap' that we will
have," Amum says, referring to the gaping revenues hole. He says the country
has enough foreign exchange reserves to last more than a year and is
confident of obtaining loans from friendly states and investors.
"They're buying a month at a time," the foreign development expert said
bluntly.
On the surface at least, patriotism is still running high.
"It's OK, we can make it," said student David Kasubi after hearing President
Kiir's appeal for more belt-tightening. But the 27-year-old student admits
he is struggling to find a job.
"We are proud of our independence. Even though we have hunger we can bear
it, because this is our home now," he said.
Not everybody is so sanguine.
Professor Akec compares the Juba-Khartoum standoff to the 1962 Cuban Missile
Crisis between the United States and Soviet Union. He says that now as then
each side is waiting for the other to blink first, with potentially
disastrous consequences.
He advocates a mutually reasonable deal. "Insecurity as we have it right now
is not attractive for investors to come to South Sudan ... capital is
cowardly", Akec said.
Government officials take a different line, citing "huge" interest from
investors to build new pipelines and refineries to end the south's
dependence on the facilities of the north.
But analysts say that with some studies viewing the Sudans' oil production
as already peaked, there are serious questions about the commercial
feasibility of an alternative pipeline.
"NO WINNERS"
Fueling the debate is a leaked March 1 memo citing a top World Bank official
warning South Sudan faces a catastrophic collapse in GDP, reserves running
out by July, runaway inflation and increased poverty as a direct result of
the oil shutdown.
The World Bank has sought to distance itself officially from the leaked
memo, which infuriated South Sudan's government.
"The situation is not as desperate as painted by the World Bank,"
Information Minister Barnaba Marial Benjamin said.
But other donors see justified reasons for alarm.
"There are no winners from the oil crisis ... no effort should be spared in
attempting to arrive at a negotiated settlement," says a March report on
South Sudan's education sector by former UK Prime Minister Gordon Brown.
Seen by Reuters, it says South Sudan's parents and children are still
waiting for the "peace dividend" from independence.
U.N. agencies are preparing to feed 2.7 million South Sudanese as they
expect the economic crunch to squeeze tens of thousands of households and
push many out of the food market.
"Our top priority during the period of austerity is to help keep the people
alive," U.N. humanitarian coordinator for South Sudan Lise Grande said in
Juba.
There are questions too about just how evenly the sacrifices will be shared.
Austerity is being proclaimed by foreign-educated state officials who enjoy
generous state salaries and vehicles and form a small, powerful elite in a
mostly poor, uneducated and rural population of 8.6 million.
Inequalities are shockingly visible in Juba. Luxury SUVs, mostly Toyota Land
Cruisers but also some Hummers, cluster like fat flies around government
offices, foreign-owned restaurants and walled private residences, which
exist alongside mud and thatch hovels, open drains, and many unpaved dirt
streets.
Juba resembles a permanent building site and the sense is of a nation
literally under construction by the hour.
"This is tougher than fighting," acknowledges the government's Deputy
Information Minister Atem Yaak Atem. (Additional reporting by Hereward
Holland; editing by Janet McBride)
C Thomson Reuters 2012 All rights reserved
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Received on Mon May 28 2012 - 18:06:26 EDT
