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EGYPT: Economists Blame ‘Neo-liberalism’ for Region’s Woes

Adam Morrow and Khaled Moussa al-Omrani

CAIRO, Jan 18 2010 (IPS) - Egypt embarked on “neo-liberal” economics more than three decades ago reorienting its socialist-oriented policies towards those of the “free market.” Now, however, many critics call the strategy a failure and blame it for the country’s rampant poverty and unemployment.

“Egypt’s experiment with neo-liberal economics has resulted in soaring inflation, steadily increasing unemployment rates and a reduction of the average citizen’s purchasing power,” Hamdi Abdelazim, economist and former president of the Sadat Academy for Administrative Sciences in Cairo, told IPS.

The experiment first began in the late 1970s, when president Anwar Sadat forsook the socialist orientations of his predecessor, Gamal Abdel Nasser, by launching his “infitah,” or “open-door” economic policy. The new strategy aimed to “liberalise” the economy by opening it up to imports from abroad and welcoming foreign investment in the country’s development.

The trend was reinforced with the 1991 collapse of the Soviet Union, when Egypt embarked on a programme of “structural readjustment” engineered by the International Monetary Fund (IMF) and the World Bank. The programme included a stringent package of reforms, the stated aims of which were to “stabilise” the macroeconomic environment, correct the balance of payments and implement fiscal and monetary reforms.

“After the fall of the Soviet Union and the ascendance of the capitalist countries on the world stage, the trend towards neo-liberal economics took off,” said Abdelazim. “At this point, the IMF and World Bank – which are essentially controlled by the advanced, capitalist nations – began forcing developing nations to follow neo-liberal economic policies if those countries wanted to qualify for financial assistance.”

These policies included privatisation of public assets, opening up to foreign investment, “streamlining” public services, eliminating trade regulations, leaving prices to “market forces” and encouraging the private sector to play an ever larger role in the running of the state. This new policy orientation, noted Abdelazim, “effectively confined the state to judicial, legislative and security – rather than economic – issues.”

The trend was set into overdrive in 2004 with the appointment of the government of “technocrat” Prime Minister Ahmed Nazif and a coterie of influential pro-business ministers.

Not long before the appointment of the Nazif government, Gamal Mubarak, son of President Hosni Mubarak – who many believe is being groomed to replace his aging father – was put in charge of the ruling National Democratic Party (NDP)’s powerful Policies Secretariat.

“The wealthy elite have come to control the ruling party, the government and parliament,” said Abdelazim. “And this elite loves Gamal Mubarak, who is sure to maintain a neo-liberal economic policy direction if he becomes president.”

According to critics, the NDP-dominated government’s commitment to “free-market” capitalism has proven disastrous. “The absence of price controls has caused inflation to skyrocket,” said Abdelazim. “Meanwhile, unemployment rates have steadily increased as average salaries have fallen in terms of real value.”

“All this has served to undermine social stability by making the poor poorer and the rich richer,” he added.

According to Yumn al-Hamaqi, economics professor at Cairo’s Ain Shams University and member of the NDP’s secretariat-general, the control of policy by a small clique of business interests does not qualify as “neo-liberal” economics in its true sense.

“In the Arab world, you find a small number of businessmen controlling economic affairs in pursuit of their interests. This isn’t neo-liberalism,” she said. “Neo-liberalism means creating a climate in which a broad base of businessmen – not just a tiny elite – can participate. In this, the Arab world has largely failed.”

The business affiliations and policy orientations of the ruling regime come in for frequent criticism in Egypt’s vast independent press. Opposition broadsheets – including the independent Al-Dustour, the Nasserist Al-Arabi and the liberal Al-Wafd – regularly denounce the ongoing sale of state assets and the government’s commitment to laissez-faire capitalism.

“The local press is allowed to criticise these policies, and it does so frequently and vociferously,” said Abdelazim. “But this is only go give the impression of democracy and freedom of expression. The state lets the papers write what they want, knowing that these unpopular policies will continue unabated.”

Despite frequent criticisms in the independent press and elsewhere, the regime appears more determined than ever to maintain its current course. Even the onset of the current global financial crisis – a de facto worldwide depression -has not deterred Egypt’s rulers from pursuing its policy of liberal economic reform.

In an interview on state television last April, Gamal Mubarak stated in no uncertain terms that demands by opposition and civil society groups for the reconsideration of privatisation-based economic policies – which many blamed for aggravating the crisis – would not be met.

Mubarak stressed that the government would “stay the course,” arguing that it was the government’s sound economic policies that had allowed it to provide sufficient resources for subsidies, infrastructure and debt service.

Six months later, on Nov. 27, his father said much the same thing, vowing before parliament that the unfolding financial crisis would not dissuade the government from continuing its economic reform policies. “The need to provide the private sector with greater incentives in the two areas of investment and exports is more pressing than ever,” the president declared.

Mubarak qualified his statements by repeating the time-worn mantra, assuring the public that the government’s commitment to liberal economic policies “would not come at the expense of social justice.”

For most critics, however, this assertion rings hollow.

“Only during election periods do they talk about social welfare,” said Abdelazim, noting that Egypt’s presidential and parliamentary elections were both around the corner. “Even after the crisis they have continued to pursue neo-liberal policies while insisting that Egypt hasn’t been affected by the crisis – which is, of course, not true.”

He went on to point out that, since the onset of the crisis, “average real incomes have decreased; economic growth rates fell to 4.7 percent from more than seven percent; local and foreign investments have fallen; and Suez Canal earnings have shrunk.” Even before the crisis, some 40 to 50 percent of the Egyptian population was already estimated to be living on less than two US dollars a day.

Egypt has not been the only Arab country to suffer the effects of neo-liberal economic policies. The United Arab Emirates (UAE), Jordan, Morocco, Bahrain, Sudan and Saudi Arabia have also applied neo-liberal economic policies to varying degrees –and paid the price, according to Abdelazim.

“Even before the economic crisis hit, most people in Egypt, Jordan, Morocco and Sudan had all been suffering the negative effects of these policies,” he said. “And after the onset of the crisis, even the wealthy states of the Gulf have been severely impacted. Dubai in the UAE has been a particularly spectacular example of this.”

The NDP’s al-Hamaqi concedes that the crisis “has shown that the state must play a stronger economic role.” In Egypt there are mechanisms to regulate the market, including anti-trust legislation. ‘’We need to strengthen these mechanisms,’’ she said.

According to Ibrahim El-Issawy, professor of economics at the Cairo-based Institute of National Planning, the failure of neo-liberal economic policies in Egypt “was clear before the current global economic crisis threw the consequences of these policies into such startling relief.”

“The global economic crisis further underlined the fragility and vulnerability of the Egyptian economy under neo-liberal capitalism,” El-Issawy wrote in the official newspaper Al-Ahram Weekly on Dec. 31. “If current policy trends continue, it will be easy to predict the outcome: a bleak future in which underdevelopment and dependency persist.”

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