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Arab Spring Wary of Economic Lifelines

Cam McGrath

CAIRO, May 30 2011 (IPS) - Governments and international institutions that once bankrolled the authoritarian regimes of Tunisia’s Zine El-Abidine Ben Ali and Egypt’s Hosni Mubarak have begun floating aid packages to speed up the economic recovery and transition to democracy in these countries. Arab revolutionaries have reason to be wary.

“Very few details have been offered about the form this aid will take,” cautions Amr Hassanein, chairman of MERIS, a regional affiliate of Moody’s credit ratings agency. “But as generous as the packages may seem, you can be sure there are strings attached.”

Group of Eight (G-8) leaders meeting in the French resort of Deauville last week said international development banks could provide up to 20 billion dollars to Egypt and Tunisia over the next three years. The institutional funding, ostensibly to support the transition to democracy, is the latest in a raft of economic aid packages offered to the two Arab nations, whose economies were battered by the popular uprisings earlier this year that toppled their dictators.

The International Monetary Fund (IMF) and the World Bank recently pledged to make 4.5 billion dollars in soft loans available to Egypt over the next 24 months. The agencies also offered 1.5 billion dollars to Tunisia, which has about an eighth of Egypt’s population and a fifth of its GDP.

Meanwhile, U.S. President Barack Obama promised Egypt 1 billion dollars in loan guarantees and a 1 billion dollar debt swap. Several other countries – including Saudi Arabia, Qatar and France – have floated their own support packages.

The eagerness of the international community to provide economic aid would appear to be motivated by the philanthropic desire to nourish fledgling Arab democracies. But economists warn that Egypt and Tunisia should read the fine print carefully before signing.

“With these kinds of packages the devil is in the detail,” says Hassanein.

Governments and institutions that provide funding – whether as loans, grants or debt swaps – are invariably seeking to maximise their benefits, he says. While there is no harm provided both sides understand and accept the terms and consequences of the deal, the conditional aid now on offer may require Egypt and Tunisia to impose policies and legislation that contravene the demands of those who led their uprisings.

“To accept foreign aid with strings attached would betray the martyrs whose blood was spilled in the revolution,” says Egyptian activist Mohamed Mansour. “Thank you Obama, but we’ll manage ourselves.”

His position is understandable. Many Arabs blame Western governments and lending institutions for the decades of political repression and intolerable economic conditions that necessitated their revolts. They observed, for instance, how Washington shelled out 2 billion dollars a year in military and economic aid to Mubarak’s regime, and how European donors propped up Ben Ali’s feared security apparatus.

Their criticism of the World Bank and IMF goes beyond the perception that these agencies use their lending clout to promote projects and policies that funnel wealth to creditors and large corporations. Some accuse them of complicity with authoritarian regimes for promoting policies that widen the income gap for the benefit of a few.

One example is the IMF’s oppressive structural adjustment programmes, which critics say forces cash- strapped governments to privatise state assets and slash social spending in order to pay their debts.

In Egypt’s case, an IMF-backed economic reform programme initiated in 1991 improved the country’s monetary policy and fiscal management, but its austerity measures led to high unemployment rates, widening poverty and wage stagnation. The programme’s controversial privatisation scheme was largely responsible for the economic inequities and labour unrest that precipitated the regime’s downfall.

The capital flight and economic instability that followed the departure of Ben Ali and Mubarak demonstrated one thing clearly: revolutions don’t come cheap.

Egypt has put the price tag on its uprising at 3.5 billion dollars, mostly as a result of losses in its tourism sector. Finance minister Samir Radwan projected a budget deficit of 31 billion dollars (about 11 percent of GDP) for the fiscal year that begins in July, and has requested 12 billion dollars in assistance to cover the shortfall.

Tunisia’s interim government is seeking 25 billion dollars over the next five years. It wants to use the money to tackle unemployment, which estimates put at 30 percent before one desperate youth’s act of self-immolation sparked the popular uprising that toppled Ben Ali.

Despite battered economies, some local groups have urged their governments to decline all offers for foreign aid. They fear international lenders are attempting to lock Egypt and Tunisia into long-term economic strategies and political alliances before they have accountable governments in place.

“There have been outcries in Egypt that our interim government has no business locking us into any lending arrangement,” says Hassanein. “The parliament should agree on any decision to institute loans, and we don’t have a parliament yet.”

Egypt’s ruling military council has scheduled the country’s legislative elections for September, with the presidential vote to follow within two months. Tunisia set its parliamentary elections for July, but may push them back to October to allow more time to prepare a workable electoral roll.

Alia El-Mahdi, dean of the Faculty of Economics and Political Sciences (FEPS) at Cairo University, says the two countries do not have the luxury of waiting until after elections to shore up their economies. Key revenue earners such as tourism are down sharply and investment has virtually dried up. Foreign reserves are dwindling fast.

Yet instead of looking to foreign creditors for solutions, she recommends paying closer attention to the budget sheets.

“(Egypt and Tunisia) need liquidity injections urgently, and the easiest solution is to get a loan,” El- Mahdi explains. “But they would do much better to mobilise their own resources and restructure the budget. Both countries need to be more careful with how they manage expenditures as this is not the time to be squandering money. ”

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