Jordan's King Abdullah speaks during an extraordinary meeting of the OIC in Istanbul
By Suleiman Al-Khalidi
AMMAN (Reuters) - Jordan's King Abdullah on Thursday swore in a new government led by a former World Bank economist and mandated to review a disputed tax system after widespread protests against IMF-driven austerity measures.
A government official said the new cabinet decided at a meeting after the swearing-in ceremony decided to withdraw a contentious personal and corporate tax bill which the previous government had sent to parliament and triggered the protests.
Abdullah, a relatively secure U.S. ally in a conflict-ridden Middle East, appointed Omar al-Razzaz, a Harvard-educated economist outside the ranks of the traditional political elite, as prime minister last week.
Razzaz replaces Hani Mulki, a business-friendly politician who was dismissed to defuse public anger that triggered some of the largest popular protests in years.
Thousands of Jordanians took to the streets in Amman and in provincial towns earlier this month against a series of tax rises since the start of the year. Protesters called for sacking the government and scrapping a tax bill which unions and civic groups blamed for worsening poverty and unemployment.
Foreign Minister Ayman Safadi and Interior Minister Samir al Mubaydeen kept their posts in Razzaz's 28-member cabinet, dominated by a mix of conservative politicians and Western-leaning technocrats, including seven women.
"The (economic) challenges we face are the accumulation of decades, in fact... nearly two decades," Razzaz said, pledging to address sluggish growth and eroding living conditions.
Rajai Muasher, a conservative politician and influential banker and among Jordan's wealthiest businessmen, was appointed as deputy prime minister.
Official sources said the government is expected to maintain traditional support for U.S. policies in the Middle East and continue with International Monetary Fund-guided reforms.
Razzaz appointed long-time veteran finance ministry official Izzeddin Kanakrieh as the new finance minister to complete negotiations over a tough three-year programme with the IMF.
Critics and some officials blame the speedy implementation of the programme for successive tax hikes this year which infuriated many Jordanians and sparked the wave of protests.
Razzaz, who was education minister in the previous administration, acknowledged after being appointed that the previous government had rushed into tax rises and pledged to engage a wide cross section of society on future levies.
The broad-based popular protests were led by middle class professionals, unemployed graduates and youth who feel alienated and disenfranchised in a country where donors and diplomats say corruption is rampant.
Critics and economists say the brunt of taxation is borne by salaried professionals in the vibrant, urban private sector that underpins the economy, and that tax evasion by a wealthy business and political elite has become widespread.
Most of the increased revenue the government has secured from a series of tax hikes this year has gone to maintaining a bloated bureaucracy in a country with some of the world's highest government spending relative to its economy.
After an IMF arrangement that induced some fiscal stability, Jordan agreed in 2016 to a more ambitious three-year programme of long-delayed structural reforms. The aim is to reduce public debt to 77 percent of GDP by 2021 from 95 percent now.
Jordan has seen public debt spiral to nearly $40 billion, driven in part by the expansionist fiscal policies of successive governments keen to create jobs and raise public sector pay to head off an repeat of 2011 "Arab Spring" unrest.
Cutting public sector jobs, either by cutting defence spending or streamlining the civil service, would greatly curb spending but both are political red lines in Jordan.
That left the IMF little choice but to seek higher taxes to rein in public debt.
In the wake of the protests, Saudi Arabia, Kuwait and the United Arab Emirates pledged to extend an aid package of $2.5 billion to help Jordan's economy weather the crisis.
Rival Qatar also pledged on Wednesday $500 million in cash and investments, officials said.
(Reporting by Suleiman Al-Khalidi; Editing by Mark Heinrich)