Negotiations between the Egyptian government and the International Monetary Fund (IMF) have resumed. On Wednesday, the IMF’s managing director, Christine Lagarde, met President Mohamed Morsy and Prime Minister Hesham Qandil in Cairo to discuss a possible US$4.8 billion budget support loan, which the government hopes to secure before the end of the year. For the new government and its creditor-to-be, completing the deal would herald a new phase in the transition, where Egypt confronts its many challenges and sets the economy back on track. But at stake is also Egypt’s economic orientation post-Mubarak.
The IMF has been quite active in the region since the Arab revolts. In Yemen, the Fund approved US$94 million emergency loan earlier this year, making Yemen the first Arab country that has faced a sustained uprising to receive IMF assistance. In Jordan, it has negotiated a standby agreement worth US$2 billion to guard against the impact of rising energy prices and regional unrest. In Morocco, it has offered to protect the country’s liquidity needs in the face of external shocks, particularly from the Eurozone crisis and the global oil market. The IMF is also working with the new governments in Libya and Tunisia. In most cases, financial support is provided to countries with a proven record of free-market reforms or with a leadership willing to implement them in the future.
When asked earlier this month how these programs differ from those of the past, Lagarde responded:
“What I think is different…is we really pay specific attention to the underprivileged, to the poor in those countries. One thing that the IMF has learned as a result of the Arab transition…is that numbers don’t tell the whole story and we have to really examine precisely what is behind the numbers. Who benefits from growth? Who benefits from subsidies? How are the fruits of growth allocated in a particular country?”
These are good questions. They should and are being asked in many parts of the world that have experienced the ravages of neoliberalism. In the Egyptian context, the last agreement with the IMF in 1991 set the stage for a wave of privatization and deregulation. By the end of the decade, over one third of state-owned enterprises were partly or wholly privatized. In the countryside, the government lifted Gamal Abdel Nasser-era tenure rights, exposing rural tenants to the vagaries of the market and the whims of newly empowered landowners. Similar policies were continued in the 2000s under the “government of business” led by Prime Minister Ahmad Nazif and a coterie of Western-educated reformers and businessmen. Over the course of 20 years the result was a massive transfer of wealth into the hands of a well-connected elite and the loss of social protections and secure livelihoods for a large number of Egyptians.
Unfortunately, nothing the IMF has said or done in the past year with regards to Egypt suggests a serious change of course. And perfunctory nods to the poor are not convincing nor do they begin to address Egypt’s myriad social and economic problems.
During loan negotiations earlier this year, the SCAF-appointed cabinet led by former Prime Minister Kamal al-Ganzouri prepared an economic reform program for the IMF (drafted by Ministry of Finance, the Ministry of Planning and International Cooperation, and the Central Bank) that remained faithful to the policies of the old regime. The focus was on deficit reduction, not generating employment or promoting social equality. In typical neoliberal fashion, the government pledged to raise revenue through strategies like indirect taxation and to cut spending through subsidy reform with no clear safeguards for vulnerable groups.
The program didn’t seem to elicit any reservations from the IMF; the only sticking point was a requirement for broad political consensus. The open confrontation between the Ganzouri cabinet and the Brotherhood-dominated Parliament at the time eventually brought the negotiations with the Fund to a halt. Now it seems Morsy and his new cabinet, in consultation with the IMF team, are modifying the Ganzouri’s program, according to Finance Minister Momtaz Saeed who served in both cabinets and helped draw up the original plan. Morsy’s economic advisor Abdullah Shehata has dismissed this claim, suggesting the Ganzouri proposal is not a baseline for present deliberations. But there is yet no evidence the government has produced an alternative that is genuinely different. In the absence of an elected parliament that can put the reform program up for public debate, the government may imagine it will be easier to push the reforms through.
To claim the loan is necessary to “bolster the Egyptian economy” is to evade concrete questions through rhetorical shortcuts.
If the budget deficit is prompting the turn to foreign assistance then the government has not sufficiently explored all its options, neither under Ganzouri earlier this year nor under Qandil now. In February, the Drop Egypt’s Debt campaign, which has been consistently critical of the loan negotiations and the proposed reforms, suggested several short-term alternatives to plug the deficit that would not require foreign credit or conditions. Egypt could lift subsidies for energy intensive industries and high-grade gasoline, while continuing to support fuel consumption by the poor. It could levy a tax on dividend payments to stockholders. It could impose a one-time wealth tax on individuals with a net worth above a certain limit, an idea proposed by Hassan Heikal, a chief executive at EFG-Hermes and hardly an economic radical.
If the government’s concern is to improve Egyptians’ productive livelihoods and their ability to meet basic needs then none of the official reform proposals so far pass muster.
The loan is really about boosting investor confidence and attracting foreign capital, a top priority for the Brotherhood’s Freedom and Justice Party. The government believes the loan will send an encouraging signal to investors at home and abroad that Egypt is once again ready for business. It’s part of a broader plan to restore pre-2011 levels of growth and business activity in hopes that the same free-market policies minus the corruption that plagued the Mubarak regime will solve problems of poverty and inequality. Unfortunately, this conservative thinking reproduces the fundamentals of Mubarak-era economic dogma and keeps attention away from structural inequalities that require redistributive solutions—minimum wage legislation, progressive taxation, greater spending on services, and expansionary fiscal policies.
Even if there are no direct conditions spelled out in the new IMF deal, the loan is still a bad idea. It threatens to further circumscribe the terms of debate on the kind of economic change that is possible in Egypt. And it would provide an international stamp of approval for the new government’s conformity to failed economic orthodoxies. Just as Mubarak’s reforms over the years were met with popular agitation so too may those of Egypt’s new rulers should they choose to follow a similar trajectory.
