Egypt and the IMF: Revolutionary economics?
It might seem ironic that Egypt began seeking help from the International Monetary Fund (IMF) less than three months after its world-renowned revolution in 2011, which trumpeted 'social justice' and 'bread' among its chief demands.
Going to the IMF was a reassurance that the populism that usually accompanies revolutions would affect Egyptian politics – but not economics.
Even at the times when President Mohamed Morsi or the military council before him seemed to be running out of political manoeuvres, they still did not play the economy card to appease the masses. And they had good reason not to do so: they couldn't.
Economic activity in Egypt was dealt massive blows in the aftermath of the revolution, which took its toll on tax revenues while the budget deficit surged. Maintaining the social benefits structure inherited from Mubarak – let alone expanding it – would prove a hard enough task.
Two years after the revolution, the economy remains far from recovery. The local currency is ailing; unemployment is surging; and growth is subdued until further notice. Even the most devoted Morsi supporters have to admit to the economic winter that is knocking at the door – or is already here.
The government, accordingly, is faced with either borrowing or raising taxes to make ends meet. Raising taxes would weaken investment prospects, while borrowing locally would have the same effect as it drives rates up and crowds out investors.
This leaves help from abroad, either through aid or by borrowing. As for aid, all that was promised Egypt following the global euphoria of the revolution turns out to have been much exaggerated. International aid is tied to the IMF deal and support from the oil-rich gulf – apart from a tiny but resourceful Qatar – is weak.
Here the IMF loan remains as the only medicine left for the economy, despite its bitterness.
The amount of the loan, roughly LE31 billion, is not what Egypt is seeking per se – the IMF seal of approval is what matters here.
"It is not about the loan, I reiterate: we need to come to a deal to reassure foreign investors that the Egyptian economy will recover," former finance minister Momtaz El-Said told Ahram Online last November.
Totally abandoning the deal would leave the Egyptian economy cornered. The government – which was gradually withdrawn from economic activity in the past two decades – is too weak to take control of the economy in a New Deal-type initiative.
PM Hisham Qandil's cabinet, for its part, reached such a conclusion early on. It has built its ambitious economic programme assuming the IMF facility as a starting point.
The loan was supposed to have been approved last December, but Egypt requested a delay due to the political instability at the time. An IMF team is expected in Cairo in the coming weeks as the minister of finance saysnegotiations are going smoothly.
Some revolutionary forces, especially those on the left, were very vocal in opposing the proposed loan – and they still are. Islamists in general, and the Muslim Brotherhood's Freedom and Justice Party (FJP) in particular, opposed it at the outset, but are now supporting it after Morsi was elected president last July.
The wider Egyptian public, however, is not taking much interest in the $4.8 billion loan.
A recent poll showed that only two thirds of Egyptians were aware of the IMF loan. Among those who have heard of it, 53 per cent support it, 35 per cent oppose it and 12 per cent are undecided.
None of the many demonstrations that were held to protest the facility attracted sizeable turnouts or significant media coverage. This is despite the fact that the economic reform programme attached to the loan includes painful austerity measures, such as raising sales taxes on essential goods.
This could be due to the widespread perception that Mubarak's economic policies were not bad in themselves, although the corruption that accompanied them was. So after getting Mubarak and his 'cronies' out of the picture, supporters of this view would say that there is no problem in pursuing the same policies.
Even the Muslim Brotherhood, Mubarak's archenemy, seems to believe this. In October 2011, Hassan Malek, one of the Brotherhood's main financiers, said that the former president's economic policies were on the right track – albeit overshadowed by blatant corruption and nepotism Consecutive cabinets since the uprising, too, seem to subscribe to this notion.
Officials and pundits, meanwhile, tell normal folks that Egypt is running out of lifelines – it's the IMF loan or economic chaos, they say. Such a message is easy to believe, especially since the myth of Mubarak’s 'looted billions' was quickly proved ludicrous.
As time goes by, the high hopes of the revolution and President Morsi's rosy electoral promises are turning out to have been little more than romantic sentimentality.