Last Update 9:40
'No' to borrowing on the terms of the IMF, Ganzouri and their successors
An IMF loan is the easy way out for Egypt's economic and political elites, but one that will betray the principles of the revolution
Wael Gamal , Sunday 26 Aug 2012
Share/Bookmark
Views: 1391

In a statement to Al-Shorouk newspaper ten days ago, Egypt's Minister of Finance Momtaz El-Said said that Prime Minister Kandil’s cabinet will restart negotiations with the International Monetary Fund for loans "based on the economic programme that [his predecessor] Ganzouri’s government submitted in a previous attempt to obtain the loan."

El-Said, who was a member of Ganzouri's cabinet and deputy to Hazem El-Beblawi in Essam Sharaf’s second cabinet, added that Egypt would request raising the loan value from $3.2 billion to $4.8 billion -- a request made when IMF Managing Director Christine Lagarde visited Cairo this week.

Said's position reflects his stance during his tenures in the second and third cabinets under military rule, before he was reappointed to the top job at the Ministry of Finance after the Freedom and Justice Party's (FJP) candidate won the presidency. 

However, the minister's advocacy of accruing more debts to address the budget deficit contradicts the FJP's stated position on the loan back in March, when Ganzouri’s government was taking steps to attain IMF funding.

At the time, the FJP said it did not reject the loan "on principle" but placed conditions for its acceptance. 

Leading member of the party, Saad El-Husseini, who was also the chairman of parliament’s planning and budget committee, told Reuters on 9 March that the government should first seek all other means to improve its standing, "including selling Islamic 'bonds' to foreign institutions and land to Egyptians abroad, as well as slashing subsidies to energy-intensive industries."

At the time, El-Husseini said that the government must first draw up a comprehensive plan to fight corruption and control spending. 

The second condition was improving transparency, according to statements by FJP Economic Committee member Ahmed El-Naggar to another publication. On 20 March, El-Naggar said that the government had not informed the party about how the loan from the World Bank would be spent, nor told parliament how it would be repaid. 

"It only submitted a summary plan of no more than 11 pages that did not detail spending or mechanisms for repayment," he said.

Along the same lines, subsequent statements by Muslim Brotherhood veteran Khairat El-Shater objected to an unelected transitional government approving the loan, saying that it would burden future generations and that decisions on borrowing should be done in a democratic way. 

El-Naggar at the time made several suggestions to trim state spending, including combining all budget funds, and converting power plants to use natural gas instead of diesel fuel. Such steps could save billions in energy subsidies without affecting living costs for the poor, he claimed.

Has anything changed?

If we apply the criteria demanded by the FJP in March to Egypt's upcoming negotiations for a larger IMF loan, then we find that  the loan is still unacceptable.

Firstly, we do not have a clear, detailed idea of the economic reform programme that is being negotiated and the point of reference remains the 11-page memo with slight alterations in tax clauses, according to the minister. 

Secondly, the precondition of democracy remains unmet. Although an elected president has appointed the cabinet, a fundamental criteria for accepting any loan is that it should be ratified by elected representatives of the people in Parliament after transparent public debate. 

At the moment, there is no such body and the president alone holds all legislative powers, a situation that prohibits a broader public debate of the matter.

Accepting the loan while under the rule of the Supreme Council of the Armed Forces (SCAF) triggered questions about democracy and the sovereignty of the people when it came to economic decisions. The same questions are relevant today. 

How can IMF officials be informed about the details of the programme and have a say in it, while the Egyptian people know nothing about it?

Just as important, are there conditions on the loan? Everyone is reassuring us that there are no conditions, as if the IMF has become the saviour of the Egyptian revolution. 

If that were the case, then why does the IMF intend to revise a government reform plan that we are still unaware of? 

Whose interests does the IMF represent if there are no neutral economic policies? Economic policies that serve the interests of farmers could, for example, clash with the interests of civil servants.

Another sticking point is what would happen if the government and a newly elected parliament decided to change the direction of Egypt's economic policy, perhaps to one more representative of the electorate and their democratic majority? 

Will Egypt be required to acquire the approval of the IMF to make these changes? What if the IMF's position contradicts the positions of our national democratic institutions?

More importantly, the president's cabinet has not presented us with any ideas or plans or measures "about other domestic alternatives for the loan," which El-Husseini had rightly demanded. 

None of the measures that El-Naggar highlighted were applied, and the call on Egyptian expatriates to buy land failed miserably. In fact the budget which El-Said drew up – and continues to be in force without modification – cuts energy subsidies by LE25 billion in one fell swoop, and its consequences will mostly hit the poor.

A lazy and comfortable solution

Borrowing from the IMF was the go-to unavoidable solution for every Egyptian government since the revolution -- the alternative, they said, was economic collapse.

Some 18 months have passed and the economy has not collapsed, although these governments did not take any large-scale steps such as revising taxes and spending to achieve economic prudence or fair distribution. 

For example, even now a resident of the poor Giza district of Saft El-Laban still effectively subsidises the fuel being used by the yachts of the wealthy at El-Gouna resort and the imported steaks eaten at the Four Seasons.

Advocates of the IMF loan cite two rationales. 

Firstly, they say the granting of funds would stand as testimony by international institutions that our economy is doing well. It would thus encourage foreign investment, reassure global companies and reduce state borrowing to plug the budget deficit. 

This may be true and necessary, if we hold to the assumption that the solution to Egypt's economic travails is solely about funding, not in resolving domestic defects, implementing a broad plan for social justice or addressing poverty in a way that boosts the country’s productive capabilities. 

Neither is this supposed solution based on a comprehensive development strategy in industry, agriculture, and other fields, where efficient, prudent and democratic use of national resources could serve the interests of the majority.

Instead, like the government plans of Ganzouri, Sharaf and even Nazif before them, this solution is based on attracting foreign investment. It prioritises mere economic growth and support for the private sector as the engines of the economy – but this time "without corruption." 

The powers that be could have been given a thumbs up in mid-2011 when the IMF approved Samir Radwan's plan -- it included progressive taxation, raising wages, imposing tariffs, and measures that are no longer on the table -- even without obtaining the loan. 

The agreement gave Egypt the right to receive money but did not obligate it to take the cash. 

However, those who remain in power until today intentionally blocked the plan – perhaps because of its handful of reforms – although the IMF had agreed to it amid the euphoria of revolution.

Relying on "free" assistance and aid "in solidarity" from an international community that seemingly adores Egypt’s revolution is an economically and politically naïve idea. 

The world is going through a gruelling economic crisis that is almost destroying capitalism.

To suppose that Obama or Hollande or Cameron will take money out of the pockets of their taxpayers to fund the poor of Abshway or Nagaa Hamadi without political reward or strategic return is a joke. 

Even if these funds were approved – and the US's weight with the IMF makes its consent critical for any agreement  – does it not mean that the US could freeze all assistance until it approves our revolution’s economic programme? 

Here, politics are not far removed from economics.

The second justification offered for the IMF loan is even more catastrophic: closing the budget deficit. 

Borrowing could resolve an immediate problem but it raises the public debt. And this is where Kandil’s cabinet and advocates of the loan contradict themselves. When they address the poor and those who are demanding higher wages they bark warnings about the budget deficit, the need to stop borrowing. The new budget reduces the expected deficit by more than one per cent at the expense of government investments, job creation and spending on health and education. 

However, the government suddenly becomes amenable and welcoming when the loan is from the IMF, ignoring the fact that it still needs to pay in the future. Perhaps this will be at a lower interest rate, but it will be at a high economic and political price. 

What about next year? How will Egypt deal with depleting resources, budget defects and its bias against the poor?

Borrowing from the IMF is the lazy solution, and a political escape plan that guarantees the interests of the ruling economic elite that is now formulating a pact with the new ruling political elite. 

This solution avoids revising failed policies that have starved our children and denied them education and healthcare, while keeping the doors wide open for structural corruption, handing the country’s wealth to undeserving hands, and putting our fate in the hands of the world market.

This is why we must reject the IMF loan based on the terms of Ganzouri, Nazif, SCAF and the mercenaries behind the scenes. They are closely followed by the US, its international financial institutions and megacompanies ravenous to seize what remains of our wealth.

Based on the principles and requisites of the FJP in March, we should say no to the IMF loan.

This is the way to keep our economy rooted in the principles of the revolution and serve the interests of the people.

(This article was published in Al-Shorouk newspaper)





Short link:

 

Email
 
Name
 
Comment's Title
 
Comment
Ahram Online welcomes readers' comments on all issues covered by the site, along with any criticisms and/or corrections. Readers are asked to limit their feedback to a maximum of 4000 characters (roughly 200 words). All comments/criticisms will, however, be subject to the following code
  • We will not publish comments which contain rude or abusive language, libelous statements, slander and personal attacks against any person/s.
  • We will not publish comments which contain racist remarks or any kind of racial or religious incitement against any group of people, in Egypt or outside it.
  • We welcome criticism of our reports and articles but we will not publish personal attacks, slander or fabrications directed against our reporters and contributing writers.
  • We reserve the right to correct, when at all possible, obvious errors in spelling and grammar. However, due to time and staffing constraints such corrections will not be made across the board or on a regular basis.
2



Adly Mostafa
29-08-2012 09:50am
0-
0+
Excellent article
Agree with the writer, excellent piece, proud of Ahram Online, Hope daily follow steps
Email
 
Name
 
Comment's Title
 
Comment
1



sawsan mostafa ali
28-08-2012 10:02am
1-
17+
MR. WAEL: DO NOT BE ANGRY WITH ME............PLEASE
MR. WAEL, WITH ALL MY RESPECT TO THE EFFORT DONE IN YOUR VERY VALUABLE ARTICLE BUT I COULD NOT COMPLETE IT BECAUSE IT IS VERY LONG. NO ONE HAS THE TIME AND PATIENCE TO READ VERY LONG ARTICLES NOWADAYS. SO, PLS TRY IN YR NEXT ARTICLE TO MAKE IT MORE CONCENTRATED. I DO NOT WANT YR EFFORT TO GO IN VAIN. THANK YOU.( CONCERNING THE ARTICLE ITSELF, I WANT TO SAY 2 POINTS:1- DR. BIBLAWY SAID THAT EGYPT HAS NO CHOICE BUT THIS LOAN. 2- I AGREE THAT THERE IS NO CLEAR ECONOMIC PLAN FOR EGYPT - AS IF EGYPT PROBLEMS WERE POLITICAL ONLY - EGYPT 'S MAIN PROBLEM IS ECONOMIC.
Email
 
Name
 
Comment's Title
 
Comment

© 2010 Ahram Online. Advertising