Samir Radwan, prominent Egyptian economist and former finance minister, who was briefly touted as a possible candidate for the premiership, spoke to Ahram Hebdo, Ahram Online's French-language sister publication about the national economy as the country enters yet another transitional phase.
Ahram Hebdo Poverty and unemployment have increased in recent years. In your opinion, what plan should the government adopt to prevent widening of social inequalities?
Samir Radwan: Egypt needs an expansionary budget for the moment, mostly through increased public investment. The primary objective of government should not be to reduce the deficit; it must first revive the economy.
I am a Keynesian and I believe that in a moment of crisis the state should interfere. When I was minister of finance, I proposed an expansionary budget with public investments of LE40 billion and a budget deficit of 11.6 percent, which would decline in subsequent years.
The idea was to encourage the private sector to invest in the country, pointing out that the government was willing to share the risks. But the military council rejected my proposal. Today, the deficit has reached 12 percent, the economy is still in the doldrums and there is more social inequality.
AH: What should the new transitional government do in the short term regarding the economy?
SR: First, the government needs to create social and political consent. Then, I should develop a short-term plan for the transitional period.
The first thing that can and must be done urgently is to allocate money for the basic needs of the population: fuel, gas and bread.
This must be done immediately. Then the government should investigate the reasons that led to the closure of 4500 factories, according to figures from the Egyptian Federation of Industries, and see how we can help reopen them.
To contain the labour movement, we need a new social contract between government, business and workers. The idea is to meet at least part of the workers' demands in exchange for a suspension of strikes during the transitional period.
Finally, the government needs to address the lack of liquidity of foreign currency. It should quickly restore foreign direct investment and tourism. One of the solutions is to seek foreign aid, especially from Arab countries.
But we do not need deposits in the central bank as some countries have offered, as they can ask for their money back at any time. The aid would be better in the form of needed oil products.
AH: You mentioned a social contract. What can the government and businessmen offer workers?
SR: A minimum wage is a must. If businessmen do not listen to the workers, they will suffer the same fate as the Muslim Brotherhood. They need to understand that. They make a profit and must pay their employees.
AH: What advice would you give the government for the medium and long terms?
SR: After the transitional period, the ministers in charge of economic portfolios should set achievable goals for growth over five years, in parallel with a plan to reduce unemployment.
Employment must be the primary concern of government during this period.
AH: What can the government do to address distortions in the labour market?
SR: We need a national training fund that is related to the real demands of the labour market. The training should target jobs that already exist.
For example, company owners can present a list of the skills they need and the number of jobs they will provide, and the fund should finance the training facility.
AH: What about the informal sector?
SR: The informal sector puffed up in recent years. It works like a "sponge" that absorbs the explosion of unemployment.
The informal sector problem is branched in a way that does not have a single cure. We should seek solutions from the experiences of other countries.
In India, where the formal sector is huge, the government offered medical insurance for workers in the informal sector. Everyone rushed to register and the government was able to precisely define the profile of the sector.
AH:What can the government do about social equality in terms of income distribution?
SR: The government must of course review the structure of government spending, so that they can stimulate the economy and benefit the poor. I think the government should not generalize the sales tax.
The burden of such tax is mainly endured by the poor and the middle class, who are already suffering. But I'm not in favour of higher income tax on businesses at the moment.
But there are other ways. First, it is necessary that taxpayers pay their taxes. Tax arrears amount to LE60 billion (roughly $8.5 billion) in addition to tax evasion.
I think a tax on acquisitions in the stock exchange should also be imposed, as in the case of Orascom Construction Industries, but also [taxes on] profits from trading on the stock exchange.
AH: According to Transparency International corruption has increased in Egypt since the revolution. How can we combat the phenomenon?
SR: Corruption in Egypt is legalised. Almost all Egyptian laws contain exceptions related to decisions by the prime minister or other ministers. We must put an end to this practice.
In addition, there are contradictions between different laws, which open the door to circumvention. Fighting corruption must start by closing legal loopholes. In brief, much legislation must be reviewed.
This article was published in Ahram Hebdo