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Egypt Embraces Oil Monarchs, Dubiously

Cam McGrath

CAIRO, Jul 18 2011 (IPS) - With the nation’s economy in tatters from the uprising that ousted its dictator of 30 years, Egypt’s transitional government has turned its back on the Western lending institutions that once propped the Mubarak regime. But its decision to accept the massive aid packages dangled by the oil-rich Arab Gulf states has raised suspicions about their intentions, as well as its own.

In May, Egyptian officials estimated that the populous Arab country would need between 10 billion and 12 billion dollars in international aid to plug a budget gap following the uprising that toppled former president Hosni Mubarak in February. They said the political turmoil resulted in enormous losses to Egypt’s tourism sector, capital markets and economic production.

In a surprise move, Egypt’s military-run government declared last month that it would not tap the 3 billion dollars loan facility it had secured with the International Monetary Fund (IMF), nor a contingent World Bank offer of 4.5 billion dollars in assistance. Instead it said it would slash government spending and turn to the Arab Gulf monarchies for the rest.

“Borrowing from our wealthy Arab neighbours makes economic sense,” says Alia El-Mahdi, dean of the Faculty of Economics and Political Sciences at Cairo University. “But these are countries that were strongly opposed to Egypt’s revolution, so we must treat their (display of benevolence) with suspicion.”

Egyptian officials attributed their decision to refuse the IMF and World Bank offers to unacceptable lending conditions and concern over the country’s debt level. Central bank figures reveal domestic and foreign debts in excess of 190 billion dollars, or about 90 percent of GDP.

“There is a high level of discomfort with the idea of borrowing from outside,” explains Amr Hassanein, chairman of MERIS, a regional affiliate of Moody’s credit ratings agency. “At one point, (before the first Gulf War), Egypt was riddled with debt and wasn’t able to handle it so it had to pay a high political price.”

IMF officials rejected accusations that its loan facility would have come with hidden strings attached such as a government commitment to reduce subsidies and carry out privatisations. They said the lending agency had offered unusually lenient terms with the aim of helping the battered Egyptian economy get back on track as quickly as possible.

But even the scent of conditionality was too much for Egypt’s interim government, which reportedly saw the soft loan as a political hot potato.

“This was more of a political decision than an economic one,” explains El-Mahdi. “The government is not in a strong position right now, and it is under intense pressure from public opinion not to accept any aid from the IMF or World Bank, regardless of the conditions.”

Many Egyptians exhibit a deep distrust of the two international lending institutions, which they blame for pushing neoliberal economic policies that resulted in high unemployment and glaring income disparities.

Protesters who continue to gather in Cairo’s Tahrir Square have opposed any lending that would lock Egypt into a particular economic model before an elected government is in place. Many are calling for an economy based on “social justice,” with an emphasis on subsidy programmes, job security and robust social welfare programmes.

By contrast, the prospect of Gulf aid would appear to enjoy wide acceptance on the Egyptian street. Nearly two million Egyptians work in the Arab Gulf states and the country shares a common cultural bond with its Islamic neighbours.

So far, Arab Gulf states have dangled over 17 billion dollars in loans, grants and new investment. The offers include 4 billion dollars in financial assistance from Saudi Arabia, 3 billion dollars from the United Arab Emirates, and Qatar’s pledge to invest 10 billion dollars in Egyptian projects and provide a 500 million dollar grant.

Hassanein speculates that the Gulf states view their aid packages as investment in the region’s stability that will protect their investments in Egypt. They may also hope to garner support for various political issues, including opposition against Iran.

El-Mahdi suspects darker motives. She finds it suspicious that Gulf monarchs who have suppressed the democratic ambitions of their own people would generously lend support to Egypt’s attempt to build a democracy.

“It is not in their interest for Egypt’s revolution to succeed, and the absolute rulers of these countries are afraid (the dissent) may spread to their own,” she says.

Saudi Arabia in particular has shown unswerving support of embattled Arab dictators, going so far as to send troops to neighbouring Bahrain to crush anti-government protests there. The Saudi government provided asylum to Tunisian ex-president Zine al-Abdine Ben Ali after he was deposed by a popular uprising in January, and reportedly extended an offer to host Mubarak after his ouster.

Nervous Arab rulers are suspected of funelling money to remnants of the former Mubarak regime in an attempt to destabilise Egypt and undermine its revolution.

“There appears to be an organised effort to create strife, and many people suspect that Gulf Arab countries are financing it,” El-Mahdi told IPS. “These states want our revolution to fail.”

In recent months, armed “thugs” have attacked protesters demanding faster reforms and the prosecution of former regime officials. At the same time, Salafists who practice a Saudi brand of radical Islam have been blamed for instigating attacks on minority Christian churches and monasteries that threaten to ignite simmering sectarian tensions.

This has led to an unsettling question: is Egypt’s military-run government turning to traditional Arab monarchies for support to avoid the stringent lending conditions of Western institutions, or to leverage the financial clout of wealthy Gulf nations in order to undermine the country’s transition to democracy and protect the interests of the former regime?

Disillusioned activists who participated in the 18-day uprising that led to Mubarak’s ouster see the ruling Supreme Council of the Armed Forces (SCAF) as an obstacle to change. Some charge that the military, headed by long-time Mubarak ally Field Marshal Hussein Tantawi, is corrupt and unwilling to implement reforms, making just enough concessions to mitigate the wrath of protesters.

“The SCAF is part of the old regime,” charges Gamal El-Sayed, a café manager. “It is trying to protect the former regime by mobilising people against the revolution to discredit it.”

In this scenario, the decision to tap opaque Gulf financial assistance would be a way to avoid the demands for greater transparency and accountability that typically accompany IMF and World Bank aid packages. The two lending institutions have already urged Egypt to pass a freedom of information law, reveal hidden assets, and disclose secret funds in the state budget, according to rights groups.

Ahmed Sakr Ashour, an expert in public administration, sees no duplicity on the part of Egypt’s military rulers, just better economic policy. He takes the government’s decision to impose austerity measures to avoid unnecessary IMF lending as an indicator that it intends to rationalise expenditure and break the debt cycle.

“I think the current government is very aware of the political risks in accepting Gulf aid, and I expect any borrowing will be short-term until the economy has a chance to recover,” he says.

Ashour adds that Egypt appears ready to do away with loans altogether and claim sovereignty over its economy. But to do so it will need to end the profligate budgets characteristic of the Mubarak era.

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