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EGYPT: Lending to Repression, Again

CAIRO, Jan 18 2012 (IPS) - For three decades Western governments and lending institutions bankrolled a corrupt regime in Egypt that trampled human rights and stifled democracy. Now they appear ready to do it again, say critics of the military council that has ruled since removing president Hosni Mubarak last February.

“Foreign aid should not be used to support a repressive regime,” says Amr Adly, political economist at the Egyptian Initiative for Personal Rights (EIPR). “It’s in nobody’s interest to throw Egypt’s economy into a deeper crisis, but international creditors have to be quite strict when it comes to transparency.”

Western governments and development banks provided billions of dollars in loans and grants to Egypt during Mubarak’s 30-year rule while paying lip service to the financial corruption and human rights abuses attributed to his regime. Watchdog groups say a large portion of this aid lined the pockets of regime cronies or funded economic and development programmes that stripped the country of its resources and drove disenfranchised Egyptians deeper into poverty.

The popular uprising that unseated Mubarak had a deep impact on Egypt’s economy. Foreign reserves plunged over 50 percent in 2011 to reach 18 billion dollars as the vital tourism industry and other business sectors continue to suffer from political instability and labour unrest. The government is anticipating a budget deficit of 11 percent of GDP this year unless it can successfully implement austerity measures to save over 3 billion dollars.

The West was quick to offer a lifeline to battered Arab Spring economies. Group of Eight (G8) finance chiefs meeting in Deauville last May said international banks could provide up to 20 billion dollars to post- revolution Tunisia and Egypt. Officials said the funding would be distributed in stages to reduce the risk of national institutions, including the military, misusing the aid or simply syphoning it off.

“Foreign creditors must exercise discretion,” says Adly. “It’s very problematic to have a non-elected government with an economic team in place since the time of Mubarak handling the budget and negotiating big loans on behalf of the Egyptian people.”

The Supreme Council of the Armed Forces (SCAF), comprised of senior military officers who served under Mubarak, has promised to turn the country over to an elected civil government by July, but analysts expect the generals will attempt to retain certain powers or privileges after the transition. Some fear any aid at this point would only help consolidate their grip on power and perpetuate Mubarak’s brutal legacy.

Egypt’s military has come under fire for using deadly force against peaceful protesters and subjecting female detainees to humiliating “virginity tests”. Rights activists have also criticised the SCAF for prosecuting thousands of civilians in unfair military trials, expanding the scope of repressive emergency laws, and stifling civil society and freedom of speech.

“Mubarak may be gone, but we’re still ruled by his regime,” says human rights lawyer and activist Negad El-Borai. “How can the European Union and United States continue to approve (loans and grants) to Egypt when their aid is being used to suppress democracy and put civil society in jail?”

In December, Egyptian security forces raided the offices of at least six local and foreign NGOs accused of receiving unauthorised funding from abroad. Local rights watchdogs condemned the raids, which appeared to target human rights and pro-democracy groups attempting to monitor parliamentary elections. Some U.S. policy experts called for Washington to withhold its annual 1.3 billion dollars in military assistance to Egypt until military leaders demonstrate a commitment to democracy and human rights.

Withholding U.S. aid would appear to suit many Egyptians just fine. Opinion polls show the majority of Egyptians reject American assistance outright, while perceiving international lending institutions such as the International Monetary Fund (IMF), the World Bank, and the European Investment Bank (EIB) as serving the rich elite at the expense of the poor.

Historically, the IMF and World Bank pushed Egypt to adopt neo-liberal economic policies that improved monetary policy and fiscal management, but did little for issues like unemployment and wages. Many Egyptians blame the structural reforms linked to their aid packages for the economic inequalities that precipitated the revolution.

Egypt’s military leadership was reluctant to adopt the IMF economic model this time round. In June 2011, the SCAF rejected a 3.2 billion dollar loan facility from the lending institution after objecting to certain unspecified conditions. Instead, it sought up to 8.2 billion dollars in loans and grants pledged by Gulf Arab countries, whose aid reportedly carried no economic conditions.

Yet Egypt has only received 1 billion dollars of promised aid, while the continuing deterioration of its economy and dwindling foreign reserves have put more pressure on the transitional government to pursue Western assistance. A top level ministerial committee announced in December that Egypt might need up to 12 billion dollars to maintain economic stability.

The generals have authorised Fayza Aboul Naga, the Mubarak-appointed minister of planning and international cooperation, to resume negotiations with the IMF on a 3.2 billion dollar loan facility. An IMF delegation was in Cairo this week to discuss the terms.

Many Egyptians are deeply concerned about the impact foreign lending will have on the country’s heavy debt servicing burden. Central bank records show that Egypt must pay nearly 3.4 billion dollars a year just to cover the interest on the 35 billion dollars in external debt run up during Mubarak’s rule.

Activists behind the Popular Campaign to Drop Egypt’s Debt (PCDED) say that if Western governments genuinely wanted to support people instead of dictators they would cancel some of this debt. Their logic: the Egyptian people should not be held accountable for debts that were incurred without their consent and that were not used for their benefit.

“The old regime got loans and misused them,” economist Ahmed El-Naggar said at a PCDED forum. “The international community should write off this odious debt if it is serious about wanting the revolution to succeed.”