Egypt has signed a staff level agreement with the International Monetary Fund in order to receive loans worth $12 billion from the IMF and $3 billion from the World Bank as well as additional loans and deposits from the Gulf countries and dollar bonds ranging between $5 to $7 billion.
This agreement comes within the frame of a whole package comprising financial and economic reform policies to be applied during the next three years. From the very first moment following the pronouncement of the agreement’s broad lines, it sparked general debate and discussions characterised with intense polarisation between the government and its supporters on one side and the opposition, which wasn’t restricted this time to the Muslim Brotherhood and its allies. It included small forces, small parties, groups belonging to the centre-left, the left and the Nasserites. Those were within the camp that overthrew the Brotherhood and backed the military and President Abdel-Fattah El-Sisi.
The irony lies in that the agreement with the IMF gave rise to unknown voices – some of them were economic experts – that was due to fears from the negative social consequences of the agreement, which will lead to reducing of government subsidies, devaluation of the Egyptian pound and rising prices.
The truth is that fears are driving many of the opponents who rely on the economic reformation failed experiences that the IMF applied in many of the world countries. Those experiences were built on imposing harsh conditions and dumping those countries in a continuous spiral of borrowing. Thus, the IMF interfered to direct the economic policies of the debtor countries.
In this context, German Economics Professor Ernst Wolff in his book Pillaging the World: The History and Politics of the IMF said: “Throughout its history, the IMF didn’t care at all for the social consequences of the borrowing policies and their repercussions. It was only interested in receiving interest payments and all the debt services regularly, in a way that ensures entering the spiral of indebtedness once again, nonstop”.
On the other hand, the Egyptian government asserted that the agreement is a confidence certificate for the Egyptian economy’s ability to attract foreign investments and achieve economic balance. It also clarified that the reform programme is 100 percent Egyptian and that there is a commitment from the government and the IMF to taking into account the social aspects and the expenditure on health and education.
According to experts, the government had no alternative but to resort to the IMF after the domestic public debt increased from EGP 1.6 trillion in 2014 to what may exceed EGP 2.6 trillion, the external public debt swelled from $46 billion to $53.4 billion, the ratio of the public debt to the Gross National Product increased from 95 percent to approximately 100 percent, the devaluation of the Egyptian pound exchange rate against the dollar in the alternative market amounted to almost 45 percent and the increase in the inflation rate from 10 percent to about 13 percent with the unemployment rate staying around 13 percent.
However, the government speech, its confidence in the agreement and in its ability to meet its commitments didn’t end the opposition, which may have ideological roots and preconceived standpoints towards accepting the IMF’s ready recipe.
The IMF applied it in several countries and sometimes without discrimination. In some countries it has succeeded, such as in South Korea, Turkey and Brazil. But, it was a failure and caused suffering in many countries such as Argentine, Chile, Yugoslavia and USSR then in South Africa, Iceland, Ireland, Greece and Cyprus.
I intend to say that internal reformation, mobilising material and human resources and the national spirit are the bases for any success in dealing with the IMF and international institutions. The IMF’s role is quite known and the dangers or the fears from applying its recipe are clear. Subsequently, it rests upon on the national will and administration in carrying out serious work to accomplish economic reformation and to deal with the IMF or any foreign institution, in a way that keeps its role as a secondary one in comparison with internal reformation efforts and the efficacy in mobilisation, the joint action between the state’s institutions, civil society and local capitalism in achieving reformation and development.
The lesson of internal reformation and self-reliance was proved by a number of countries who dealt with the IMF. On the top comes Brazil which has paid all its debts three years after Lula da Silva took office. Turkey has paid all its debts to the IMF in the current year to be one of 11 countries worldwide who did the same. It was able to reach zero debts for the IMF in time.
The countries which succeeded in paying off all their debts since 2000 are South Korea (2001), Brazil (2005), Russia, Argentine and Uruguay (2006), Turkey, Latvia and Hungary (2013), Macedonia, Romania and Iceland (2015).
According to statistics, more than 70 countries from a total 189 are indebted to the IMF with about $80 million, headed by Portugal with more than $21.7 billion. Twenty-eight countries were unable to pay their debts to the IMF in time, including, Vietnam, Bosnia Herzegovina, Sudan, Congo, Cuba, Iraq and Afghanistan.
Egypt can repeat the success models in dealing with the IMF and keeping away from failure. The first condition: maximising self-reliance, high quality performance, not to lay the burden of the economic reform bill on the shoulders of the poor and middle classes.
What comes first and foremost in the success conditions for Egypt is upgrading the state institutions, developing them and ridding them of bureaucracy and corruption. It suffices to say that efforts exerted in this sphere are extremely limited and sometimes hesitant. What’s more important is that they lack vision or strategy originating from the necessity of developing the state bodies and making them subject to accountability and rules of transparency and equality. This should be done in a way that not a single state institution enjoys a special status that keeps it away from popular monitoring and transparency, or that this institution has certain privileges in expenditure or investment.
The second condition: reviewing the economic performance with the aim of evaluating the feasibility of the grand national projects and the investment in infrastructure and housing which its cost reached one trillion and about EGP 400 billion during two years. It also implies identifying priorities in the light of the available capabilities.
The third condition: identifying the state’s role in the economy i.e. whether it will lead the reformation and development or play the role of the organiser and backer of the private sector. In this context Robert Ricco, Italian economics professor specialised in the Egyptian economy, sees that Egypt’s heading towards the IMF reflects it is following the same mixture of policies it adopted since the nineties, which includes a blend of “neo-liberal policies and the state’s hegemony”.
Undoubtedly, this situation accompanied by the negative image of Egypt abroad as an unstable country threatened by terrorism will negatively affect the flow of investments which the IMF and the Egyptian government are betting on to get. For the reform programme suggests the attraction of investments and selling the shares of some successful companies in the fields of oil and electricity to Egyptians and foreigners.
The fourth condition: activating public participation in executing the economic reformation programme (Brazil and Turkey models) in a way that public acceptance is present concerning the programme’s consequences and repercussions such as austerity and rising prices. This step is necessary in order that Egypt evades a furious popular uprising against the IMF’s recipe, similar to the one that took place in January 1977 against President Sadat and he had a great popularity at the time.
Undoubtedly, history isn’t repeating itself however the probabilities of public outrage are possible unless the government take the initiative and be frank with citizens and take necessary measures to protect the poor and low-income earners.
The fifth and final condition: the necessity to widen the public space and review the freedoms and human rights file. Because the public participation – the previous condition – requires activating political participation; backing parties and independent syndicates; respecting the role of parliament and municipalities in monitoring the government’s agreements with the IMF and other international institutions; the extent of the government’s commitment to carry out the economic reformation programme; checking the extent of the government’s commitment in the fields of education and health according to the quotas stipulated in the constitution; enhancing the social protection network in order to protect low-income earners during the reformation process.
It is certain that throughout the successful experiences in dealing with the IMF there existed a relation between reformation, development and human rights. It is not true that the harsh or hard measures of the economic reform require an iron fist or nationalisation of politics. This can’t be done in Egypt after two revolutions and in the age of communications and social media revolution.
The writer is dean of the Faculty of Communication and Mass Media at the British University in Egypt (BUE).