Toward Understanding Financial Diplomacy: The Case

of Morocco
Fadoua Joudar, Brahim Dinar

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Toward Understanding Financial Diplomacy: The

Case of Morocco

Fadoua JOUDAR, (Doctorante Chercheuse)

Laboratoire de Recherche en Economie, Gestion Management des Affaires
Faculté d’économie et de gestion
Université Hassan 1er Settat, Maroc

Brahim DINAR, (Enseignant Chercheur)

Laboratoire de Recherche en Economie, Gestion Management des Affaires
Faculté d’économie et de gestion
Université Hassan 1er Settat, Maroc

Laboratoire de recherche en économie, gestion

management des affaires
Faculté d’économie et de gestion
Correspondence address : Université Hassan 1er de Settat, Maroc
Km3, Route de Casablanca, Settat,
26000 Settat. Maroc
[email protected]
Authors are not aware of any findings that might be
Disclosure Statement :
perceived as affecting the objectivity of this study
Conflict of Interest : The authors report no conflicts of interest.
JOUDAR, F., & DINAR, B. (2022). Toward
Understanding Financial Diplomacy: The Case of
Cite this article :
Morocco. International Journal of Accounting, Finance,
Auditing, Management and Economics, 3(3-1), 109-123.
https://doi.org/10.5281/zenodo.6582481

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Received: April 26, 2022 Published online : May 30, 2022

International Journal of Accounting, Finance, Auditing, Management and Economics - IJAFAME

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Volume 3, Issue 3-1 (2022)
Fadoua JOUDAR & Brahim DINAR. Toward Understanding Financial Diplomacy: The Case of
Morocco

Toward Understanding Financial Diplomacy: The Case of

Morocco
Abstract:
Due to an economic context characterized by globalization, marked by
fierce competition and by the opening of markets at the international
level, several opportunities and large-scale challenges arise because of
this new international context. This set of circumstances has drawn
increasing attention to the role of financial diplomacy in promoting
savings. Generally confused with economic diplomacy, financial
diplomacy represents a particular aspect of diplomacy, however it remains
very little treated in research works.
Aware of the importance of financial diplomacy in the insertion of its
financial system at the level of international finance, Morocco has
deployed remarkable efforts in this direction. Indeed, the interest given to
financial diplomacy by Morocco is not new, it dates back to its
independence.
The structural adjustment program initiated in Morocco in 1983; was the
beginning of strengthening the assistance and support relations of the IMF
and the World Bank. These relations explain Morocco's interest in its
financial diplomacy.
Due to the lack of research work dealing with this issue, this article
attempts to answer the following question: What are the illustrations and
actors of financial diplomacy in Morocco to ensure its insertion in the
international economy?
To answer this question, this article examines the importance of
Morocco's financial diplomacy in international financial relations,
through an identification of diplomatic actors as well as its contribution to
Morocco's debt situation.

Keywords: Financial Diplomacy - International Monetary Fund - World Bank

Classification JEL: F00, G00, F65
Paper type: Theoretical Research

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1. Introduction:
Financial diplomacy is characterized by the effective management of
financial relations at the international level through which states manage
their foreign relations and make decisions.
It represents a subset of economic diplomacy, which has progressed more
slowly (Bayne, 2008).
Indeed, financial diplomacy employs several actors whose objective is to
carry out the negotiation and decision-making process, serving to improve
the financial system and develop its insertion in international finance.
The International Monetary Fund and the World Bank represent the most
dominant and influential institutions in the search to achieve financial
diplomacy thanks to their missions of orientation and good economic and
financial governance.
The latest financial crisis prompted the developed countries of the Group
of Seven (G7) to approach the IMF to encourage it to implement rescue
plans linked to policy reforms.
Financial crises have followed one another, especially in Asia, starting
with the crisis in Thailand in 1997, in Indonesia and in South Korea,
which have spread internationally. The Group of Seven (G7) countries
then worked for the “new international financial architecture” to be
adopted by the IMF and the World Bank to prevent the recurrence of
similar problems. (Bayne, 2008)
Thus, the IMF and the World Bank have provided financial support
through structural reforms aimed at remedying the weaknesses of the
financial sector, as well as adjustment programs aimed at addressing
financial imbalances.
For its part, Morocco is increasingly interested in the importance of
financial diplomacy and its crucial role in contributing to its integration
into the international economy. The importance that has emerged since its
independence, and more precisely during its debt crisis.
Morocco intensified its cooperative relationship with the IMF during the
period from 1983 to 1993, a period during which Morocco was obliged to
adopt IMF-supported stabilization strategies to take advantage of external
debt rescheduling, which weighed heavily on the growth of the Moroccan
economy and constituted a handicap to its development.
The Moroccan authorities have shown great flexibility about the
economic guidelines drawn up by the IMF even beyond the period of
structural adjustment which ended in 1993; the recommendations and
support of the IMF and the World Bank have continued to be listened to

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by the Kingdom, their assessments have become a sign of a healthy

Moroccan financial sector.
This article discusses Morocco's financial diplomacy since the reforms
related to its debt situation as well as its contribution to improving the
Moroccan economic situation thanks to the various actors who ensure that
the objectives sought by financial diplomacy are achieved.
Following this introduction, the second section discusses the conceptual
framework of economic and financial diplomacy. The third section will
discuss financial diplomacy in Morocco and its contribution to economic
development. Finally, a general conclusion to this contribution.

2. Conceptual framework of economic and financial

diplomacy:
Financial diplomacy cannot be dissociated from economic diplomacy; it
is in fact a subset of the latter (Bayne, 2008). It is in this vision that we
thought it appropriate to present the conceptual framework of economic
diplomacy to better understand that of financial diplomacy.
According to Bull (1995), diplomacy is "the conduct of relations between
states and other entities in world politics by official agents and by
peaceful means".
Indeed, diplomacy is not limited to a precise discipline, it intervenes in
several fields, this is how it is defined by Barston (2006) who considers
that "diplomacy is concerned with the management of relations between
states and other actors”.
Among other things, economic diplomacy requires special attention from
states because it plays a crucial role in the management of international
economic relations and makes it possible to conclude agreements as well
as negotiations aimed at improving growth and promoting the economy.
In their work, Bayne and Woolcock (2007) present economic diplomacy
as "decision-making and negotiation in international relations".
Economic diplomacy is linked to the objectives it achieves insofar as the
purpose of any negotiation should present a gain to economic
development, Rana (2007) explains economic diplomacy as being "the
process by which countries attack the world external, to maximize their
national gain in all areas of activity, including trade, investment and other
forms of economically beneficial exchanges, that provide a comparative
advantage, comprising bilateral, regional and multilateral dimensions,
each of which is important”.

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Economic and financial decisions taken on an international scale require a

rather complex and fearful approach. Yet economic diplomacy facilitates
the negotiation process through several actors and organizations. As
Berridge and James (2003) point out, "economic diplomacy is concerned
with economic policy issues, including the work of delegations to
conferences sponsored by organizations such as the WTO, and includes
diplomacy that employs economic relations either as rewards or as
penalties, in pursuit of a particular foreign policy objective."
In the same area of reflection, financial diplomacy, as we have mentioned,
is an influential and strongly present part of international financial
relations.
In the context of financial globalization, we hear more and more about
these financial relations controlled by financial diplomacy which aims,
through the attempts of governments, to establish stability in the absence
of an international commercial regulatory framework.
To better understand international economic and financial relations, it is
necessary to clarify the role of non-ordinary diplomatic actors such as
ministries of finance, central banks, companies, the banking sector as well
as diplomatic forums such as the World Economic Forum.
The Group of Seven (G7), Group of Eight (G8), and the IMF and World
Bank have a significant amount of influence, as they represent
mechanisms linked to governments. This impact is part of a perspective of
supporting an approach centered on the state of financial diplomacy.
(Budd 2003; Wicks 2007).
The studies that have dealt with financial diplomacy have focused mainly
on its inability to decline the financial crises of the last decades.
On the other hand, following the examination of the reports of the IMF
and the World Bank, it is to be noted that these studies concern only the
economic and financial consequences of the negotiations while they omit
to specify the diplomatic steps allowing the completion of these
negotiations (Lee, Donna and Hocking 2010: 18).
We define financial diplomacy as a set of policies of negotiation,
partnership or cooperation concerning state-state or state-international
organization financial relations. Such as financial aid, donations or state
debt strategies.

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3. Financial diplomacy in Morocco and its contribution to

economic development:
Aware of the importance of economic and financial liberalism, Morocco
since its independence has encouraged freedom of enterprise and free
trade.
Moroccan economic relations are characterized by a high degree of
openness to the outside world. Since the 1980s, Morocco has opted for an
opening of financial exchanges aimed at increasing its financial sector and
consequently developing its economy, which experienced several
problems during this period.
Indeed, the Kingdom's international financial relations have allowed it a
solid insertion in the world economy, which, on the one hand, has
improved its financial system through the expansion of investments and
the strengthening of financial exchanges, but on the other hand, this
insertion has contributed to the propagation of global financial failures.
3.1. The actors of Moroccan diplomacy :
Morocco has made efforts to strengthen its financial diplomacy through
several actors and through an adequate diplomatic network which is
defined by the Ministry of Foreign Affairs and International Cooperation
as follows:
“The Ministry of Foreign Affairs and Cooperation has several
representations abroad, namely diplomatic missions (Embassies and
Permanent Missions) and consular posts.

The Embassies, whose number today reaches 91 representations around

the world, have as missions to maintain the relations of Morocco on the
diplomatic and political level and to promote the economic, cultural, and
scientific relations with the countries of accreditation.
The Consulates General, numbering 53 plus one branch, have, for their
part, the mission of ensuring the protection of the interests of Morocco as
well as those of Moroccans residing abroad, and of providing consular
services, in particular, the CNIE, passports, civil status booklets, adoulaire
acts, as well as visas and appropriate documents for the benefit of persons
wishing to travel to Morocco.
In addition, the Consulates General work, within their respective consular
districts, to strengthen and promote the Kingdom's economic and
commercial relations.
The Permanent Missions, for their part, play the role of Morocco's
interlocutor with international organizations. These are missions to the
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United Nations in New York, the United Nations Office, and other
International Organizations in Geneva, UNESCO in Paris, and the
European Union in Brussels.
3.2. Illustrations of Morocco's financial diplomacy :
Morocco's financial diplomacy originated after independence following
various successive reforms to deal with the intensification of Morocco's
indebtedness between 1983 and 1993.
We will detail the illustrations of Morocco's financial diplomacy as
follows:
3.2.1. The intervention of the International Monetary Fund: The
structural adjustment plans: 1983-1993
Indeed, Morocco's financial diplomacy is mainly reflected in its
cooperative relations with international institutions, for example, the
International Monetary Fund and the World Bank. Links that have
intensified following the reforms that we will deal with in three phases:
➢ Pre-adjustment phase: 1972-1982
Economic growth, recorded between 1972 and 1982, was slightly lower
with an average annual growth rate of 4.9 (HCP, 2005).
The increase in the price of phosphate from 1973 to 1974 generated a
positive effect on external financing in 1975, as well as the investment
rate, which rose considerably, did not have a significant effect on
economic growth. The doubling of the investment rate did not have a
favorable impact on growth during this period.
Indeed, between 1975 and 1978, the price of phosphates fell dramatically,
followed by years of drought (1975, 1977, 1979, 1981), which led to
disruptions in public finances and external accounts. This situation
increased the external debt to finance development projects.
To increase investment and accelerate economic growth, Morocco
adopted the five-year plan from 1973-to 1977, a goal that was not
achieved because of the collapse of phosphate prices in 1976.
To remedy this situation, Morocco entered into the program of a three-
year plan from 1978 to 1980, “whose primary objective was to restore
budgetary and financial balance. Apart from a reduction in total public
expenditure from 40% in 1977 to 30.6% in 1980, this program did not
achieve the expected results due to an unfavorable international situation
marked in particular by the second oil crisis in 1979, and by an increase in
foreign interest rates that aggravated the burden of the foreign debt”.
(Baraka and Benrida, 2006: 310)

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➢ Adjustment phase: 1983-1993

In the early 1980s, Morocco experienced a serious deterioration in its
financial situation, with an external debt increasing more than six-fold
between 1975 and 1982.
To remedy this situation, Morocco was required to subscribe to
stabilization programs supported by the IMF and the World Bank to
reduce its debts. This period allowed Morocco to enter into a structural
adjustment phase (SAP) through the confirmation of six agreements.
World Bank support for structural reforms through sectoral adjustment
loans and structural adjustment loans have enabled the introduction of
deep reforms, particularly in the areas of taxation, foreign trade,
rationalization of the public sector, and the financial market.
According to the Ministry of Economy and Finance, Department of
Studies and Forecasts, the results of the structural adjustment program are
as follow:
Firstly, the growth rate recorded by the Moroccan economy during the
period 1983-1994 averaged 4.1 percent per year. However, this growth,
which was significant during a period of structural adjustment, was not
able to cope with a sharply increasing active population, which led to an
aggravation of unemployment.
Secondly, the substantial reduction in the public deficit as a percentage of
GDP: from 15% in 1982 and 10.1% in 1983, this deficit was reduced to
2% in 1992. It rose to 2.4% in 1993 and 3.1% in 1994
In addition, the current account deficit of the balance of payments, which
was 12.3% of GDP in 1982, was sharply recovered in 1983 (6.5% of
GDP) thanks to the halt in imports and the restrictive measures taken in
1983 in the area of foreign trade. It stood at 0.8% in 1990 and 2% in
1993.
Furthermore, the implementation of the structural adjustment program
made it possible to reduce the ratio of external debt to GDP from 128% in
1985 to nearly 70% in 1994 and to keep debt service about exports of
goods and services below 36%.
Finally, the structural adjustment plan reduced the public deficit and the
current account deficit of the balance of payments. However, the debt
problem persisted.
➢ Post adjustment phase: 1994-2004
Following the various reforms implemented during the SAP aimed at
increasing the Moroccan economy as well as the shortcomings of the
objectives achieved, Morocco has embarked on the second generation of
reforms in cooperation with international institutions.
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➢ External debt rescheduling strategy:

Morocco's financial diplomacy enabled it to adopt, through the structural
adjustment program, a strategy of rescheduling its external debt between
1983 and 1993.
This strategy was a response to the alarming situation that was
characterized by imbalances in the domestic and external accounts.
Thanks to the support of the IMF, Morocco signed in 1983-1993, nine
agreements to reschedule its debt in order to relieve the threat of
indebtedness during this period.
Evolution of the total external debt (1975-1997)
Year 1975 1980 1985 1987 1990 1991 1992 1993 1994 1995 1996 1997
Debt in 2353 9710 15753 19800 23524 21267 21305 20783 21712 23006 21168 18983
millions
$
% GNP 26.2 53.3% 122.4 128% 97.1% 80% 71.2% 57.8% 48.8% 69.9% 59.1% 58.3%
% %
Source : (Ferguene & Mohssine-Abdali,2003)
Since 1993 and after 10 years of reforms through the structural
adjustment program (1983-1993) and the rescheduling of the external
debt, the external debt situation in Morocco has not recovered, as it has
stabilized at around $20 million; going from $20 million in 1993 to
around $19 million in 1997, thus representing a non-negligible share of
GNP exceeding 50%.
3.2.2. Active management of external debt: Conversion of debt into
investment
Morocco's financial diplomacy has resulted in the establishment of an
external debt management mechanism through the conversion of its debts
into investments.
Indeed, we found that at this stage, Morocco was obliged to act in the face
of the debt crisis through active management of the external debt adopted
by the Treasury and External Finance Department (TEFD), in 1996, the
year of the start of this mechanism, several agreements of conversion of
debts into investments have been concluded.
To alleviate the excessive weight of the Moroccan debt, among these
agreements, we are going to cite by way of illustration, the agreement
concluded with France being the subject of conversion into the investment
of the debts in 1996 of an amount of 1 billion F divided under two
tranches:

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« - a debt remission of 400 million F in exchange for Morocco's

commitment to invest an equivalent amount in the development of the Rif
regions, to fight against the development of a drug economy, based on the
cultivation of cannabis, in this area;
- a reduction of 600 million F representing a conversion of receivables
into investment for projects of French companies, in particular within the
context of privatizations.» (Rapport n° 319, 1996/1997)
This mechanism aims to mitigate the external debt and encourage foreign
investment in multiple areas.
The Franco-Moroccan agreement has allowed the introduction of several
other agreements in the same perspective, namely the agreement with
Spain and with Italy.
3.2.3. Precautionary credit lines by the IMF :
Since 2011, the IMF has established the Precautionary and Liquidity Line
(PLL) to « provide financing to meet the actual or potential balance of
payments needs of countries with sound economic policies; it is designed
to serve as insurance or to help resolve crises in a wide range of
situation» (IMF, 2016).
A precautionary and liquidity line of $6.2 billion was provided to
Morocco in 2012 to protect against potential uncertainties as well as to
promote its economy. (IMF Survey, 2012).
While the LPL is an insurance instrument for Morocco to ensure its
stability, it is a testament to its sound economic policies.
Thus, Christine Lagarde, IMF Managing Director, praised the structural
reforms undertaken by Morocco, she announced : « Morocco has
intelligently exploited the philosophy of the credit line and financial
protection of 6.2 billion dollars made available by the IMF. »
(Alaoui,2014).
3.2.4. Accession of Morocco to the GATT then WTO:
Morocco joined the GATT in 1987 and became a member of the WTO on
January 1, 1995.
In doing so, it grants most-favored-nation (MFN) treatment to all its
trading partners and participates actively in the various WTO forums and
rounds of negotiations. Morocco has reiterated its commitment to the
multilateral trading system as beneficial to growth, development and
welfare.

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However, he has always argued that the benefits of multilateralism should

be shared equitably among all countries and that special and differential
treatment should be a fundamental component of the negotiations.
➢ Morocco's behavior vis-à-vis the financial negotiation services
of the WTO/(GATT):
Morocco has engaged seriously as expected in the multilateral trade in
goods and services agreements while creating new dimensions aimed at
aligning national legislation with the various foundations of the WTO.
In 1997, Morocco reformed its legislation to protect the agricultural sector
with tariff equivalents and safeguard measures.
In the same perspective, Morocco proceeded to the incorporation of the
import tax levy in the import duty, the binding of tariff lines, the
reduction of bound tariffs and the tariffication of quantitative restrictions
on agricultural products.
The agricultural negotiations were incorporated in 2001, during the fourth
WTO ministerial conference in Doha. As a result, Morocco has made the
tariff reductions for agricultural products provided for in the agreements
(2.4% per year), it acts assiduously on notifications relating to export
subsidies, internal support, special safeguards measures and tariff quotas.
Since the implementation of the WTO agreement, the textile sector has
undergone a gradual liberalization through the four integration phases of
16%, 17%, 18% and 49%, which are based on the adaptation of trade in
textile and clothing products to WTO principles.
The telecommunications sector has been liberalized through the
Moroccan financial system which has innovated its stock exchange
legislation and adopted a new banking law and a new insurance code.
Morocco has actively deployed its efforts to reform the legal and
institutional framework for intellectual property protection. (DFSF,2008)
3.2.5. Free trade agreements :
Opening up to the outside world has always been a strategic choice for
Morocco, deemed necessary to boost its growth and benefit from the
contributions of foreign investment in terms of technology transfers and
know-how, management skills, organization and job creation. This choice
has been crowned by the signing of a range of bilateral or multilateral
agreements that give the right to tariff reductions or that advocate
preferential trade arrangements. These agreements are part of Morocco's
efforts to strengthen its anchoring in a regional and international
environment undergoing profound changes.

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In addition to joining the WTO in January 1995, Morocco has concluded

free trade agreements (FTAs) with the European Union (1996), the Arab
Free Trade Area (1998), EFTA (2000), the Agadir Agreement (2001),
Turkey (2004), and the United States (2005). Other agreements with Arab
and African countries have also been signed in the context of
strengthening cooperation with the countries of the South (Ministry of
Foreign Trad).
3.2.6. Projects financed by the Islamic Development Bank and the
African Development Bank:
Since its creation, the Islamic Development Bank (IDB) has financed
several projects in Morocco for a total of 6.7 billion dollars according to
Al Hajjar, IDB president.
The memoranda of understanding concluded between Morocco and the
IDB, as well as the IDB-financed projects that are in progress,
demonstrate the strategic relationship between the bank and the kingdom.
Its ambitions to expand its investments have enabled the IDB to finance
projects in Morocco to create employment opportunities and contribute to
the improvement of the population's living standards.
In this regard, Bandar Al Hajjar, President of the IDB, praised "the
policies and strategies undertaken by the Kingdom, especially in the field
of renewable energy, stating in this regard that the IDB supervises,
alongside Morocco, a program on the transfer of Moroccan experience in
the field of renewable energy and rural electrification to African
countries.
On the other hand, in 1978, the first project financed in Morocco by the
African Development Bank Morocco concerned drinking water and
sanitation.
Until the end of 2017, the Bank has approved more than 160 operations
for a total of 10 billion USD, with the objective of improving the quality
of life in Africa, the Bank maintains its support to Morocco.
As of September 2017, the Bank's active portfolio includes 31 programs
and projects, representing nearly USD 2.8 billion in commitments
distributed in agriculture (11%); transport (22.4%), energy (33.8%), water
and sanitation (15.9%); social development (5.4%); and other multi-sector
operations (11.6%) sectors.
The ADB plays an important role in supporting the financing of projects
(NOOR solar complex, Nador West Med port). Indeed, this financial
support is part of a perspective of fighting unemployment through job
creation and encouraging self-entrepreneurship.

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Indeed, the ADB encourages industrialization in Morocco through the

Support Program for the Acceleration of Industrialization of Morocco,
which will allow the Kingdom to strengthen its insertion in the value
chains at the international level and to improve infrastructure services,
rural road construction and electrification. The ADB's mission is to
develop the financial system through policies aimed at modernizing the
national economy.

4. Conclusion:
After studying the various illustrations of financial diplomacy and their
contributions to alleviating the alarming situation from which Morocco
suffered, it should be noted that the Moroccan authorities have shown
flexibility vis-à-vis the interventions of the IMF and the World Bank, the
latter playing a primordial role in the orientation of Morocco's financial
policy, which is attentive to the recommendations even beyond the
adjustment plans.
The Moroccan financial system demonstrates effective financial
diplomacy that could play a major role in preventing and mitigating the
adverse effects of debt crises and in the development of the Moroccan
economy.
However, the interventions of the IMF and the World Bank during the
period under study also revealed limitations at the economic level,
because despite the favorable results achieved by the Moroccan economy
during the ten years of structural adjustment, the latter did not achieve its
growth and employment objectives.
This reflection explains the importance given by most of the studies that
have dealt with financial diplomacy, which have exposed its inability to
deal with financial crises and imbalances.

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ISSN: 2658-8455
Volume 3, Issue 3-1 (2022), pp.109-123.
© Authors: CC BY-NC-ND

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