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Thursday, July 2, 2015
- After 18 months of talks, on Wednesday Egypt’s government formally requested a 4.8-billion-dollar loan from the Washington-based International Monetary Fund (IMF), hoping to stabilise an economy that has continued to badly stutter in the aftermath of the popular uprising that led to the downfall of former President Hosni Mubarak.
The request, relayed to IMF chief Christine Lagarde by Egyptian President Mohamed Morsi in a meeting in Cairo on Wednesday, has been met with scepticism from sectors of Egyptian civil society as well as some nationalist politicians.
Many are now expressing anxiety over the negotiations’ lack of transparency and the possibility that the Egyptian government could agree to onerous conditions that may force it to cut back on spending on social welfare and safety nets.
“Many fear that a new era of dependency will start, even after the revolution,” Amr Adly, economic and social justice director with the Egyptian Initiative for Personal Rights, a Cairo-based watchdog, told IPS.
“The IMF loan won’t be approved without giving concessions that completely contradict the promises of a new development model, and thus undermine the potential for social justice measures after the revolution.” (The IMF did not respond to a request for comment for this story.)
Currently, Egypt has some 35 billion dollars in international debt, and talk of a major IMF loan also runs up against ongoing campaigns urging the international community to look into reducing such debt.
“The best way for the international community to support a fresh start for the Egyptian people would be to support an independent commission to determine if much of the debt accrued during the Mubarak era is illegitimate and thus should be cancelled, before any new debt is undertaken,” Deborah James, with the Centre for Economic Policy Research, a think tank here in Washington, told IPS.
This is not to say that the Egyptian economy doesn’t need some significant assistance. Since the beginning of the popular uprising in January 2011, as foreign tourism and investment have plummeted, the country has reeled from a massive crunch on foreign reserves and liquidity as well as a fast-widening budget deficit.
While the IMF has been in talks with the Egyptian government throughout much of that time and billions of dollars in so-called standby credit have been on offer, Fund officials have been wary of going forward until Cairo has been able to show broad political support for taking a loan. With President Morsi’s recent show of power over some of the military’s top brass, many observers feel that the talks could now come to fruition.
Several countries, including Saudi Arabia, Qatar and the United States, have decided or are contemplating offering significant bilateral help to Egypt, as well. Qatar alone has pledged two billion dollars.
The need for economic help notwithstanding, Egyptians are now trying to weigh their country’s financial troubles against the rumours of what the IMF may require of the government.
Adly, for instance, suggests that the IMF is likely to push for the privatisation of public utilities, regressive taxation and less social expenditure. But he also expresses frustration that, to date, much of this is simply speculation.
“There is no transparency in this process – we have no idea about what the IMF and the government are negotiating about,” he says. “The government has said that the IMF is not imposing any conditionalities, but then why are they negotiating at all?”
Part of the issue is that the newly elected president, his Muslim Brotherhood party and its ruling coalition have decades of experience in social and religious issues but lack expertise in monetary and fiscal issues.
As such, many are worried that IMF officials will be able to dictate the terms of the loan to a greater extent than it would if it were dealing with a government with a clear economic vision.
Morsi’s government is clearly aware of its lack of economic expertise, and thus has chosen to keep around some important members of Mubarak’s government, including the governor of the central bank, Farouk Al-Okdah, and others.
“These are the very members of the neoliberal team once in charge under Mubarak,” Adly says. “These bureaucrats and technocrats are quite conservative, and there is the idea that they have been kept in office in order to negotiate with the IMF and the World Bank.”
On Wednesday, Lagarde said that the IMF is “responding quickly” and sending a technical team in early September. That same day, Prime Minister Hisham Qandi said he would hope for an agreement by the end of the year.
If an agreement happens, Egypt would be the 20th African country to be indebted to the IMF, according to 2011 statistics. If the final agreed amount is anywhere near the request, the Egyptian loan would be by far the largest on the continent.
In lieu of information about current negotiations between Cairo and the Fund, lessons learned from experiences elsewhere are inevitably forming some of today’s analysis.
Rick Rowden, an economics doctoral student at Jawaharlal Nehru University in Delhi and a development consultant, says that many multilateral funders, including the IMF, have for years placed significant emphasis on human development indicators.
In so doing, he tells IPS, they have “wholly neglected the actual need for economic development – shifting from an economy that is overly reliant on agriculture and extractive industries into one that is based more on manufacturing and services”.
Time and again, Rowden says, the IMF and other funders have pushed policies that seem to run counter to the industrial policies that most countries need to create real development: those that build domestic manufacturing. Doing so, he says, make it difficult for countries such as Egypt to “get out of plantation mode”.
Rowden suggests that this can be further exacerbated by a tendency on the part of the IMF not to differentiate between domestic and international private sectors, an “essential first step” in creating effective domestic industrial policies.
“The people of Egypt need to participate and make sure their government takes steps to develop national development strategies, including the adoption of long-term industrial policies to build a domestically owned manufacturing base with a clear plan to diversify the economy, build up the tax base and increase public investment,” he says.
“And none of this will be likely under [IMF] loans and policy advice.”