Egypt’s new president-elect will not say no to IMF loan

Published July 1st, 2012 - 11:08 GMT
Christine Lagarde in the Middle East
Christine Lagarde in the Middle East

Egypt will push ahead with talks on a $3.2 billion International Monetary Fund loan after Mohammad Mursi takes over as president in a country suffering from its worst economic slowdown in decades.

Mursi is “still looking” at the possibility of securing the loan and “there will be further discussions,” his spokesman, Yasser Ali, said by phone. He noted that the IMF had earlier stipulated it wanted to see broad political consensus on an economic program before the funds are approved.

Advocates of an IMF accord say it’s key to restoring confidence in Egypt’s economy. Last year’s uprising deterred investors and tourists, and the central bank has spent more than half its foreign reserves since then as it sought to defend the currency. The loan, requested by Egypt’s government in January, has been delayed by political tensions between the military and elected politicians that may persist after Mursi, the Muslim Brotherhood’s candidate for president, takes office.

The ruling army council, due to hand over to Mursi within the next two days, moved to bolster its powers hours after polls in the presidential runoff closed on June 17, with a decree widening the council’s powers at the expense of the presidency.

The move came days after parliament was dissolved by the country’s top court. It was dubbed a “coup” by the Brotherhood and youth activists, who have called for a rally in Cairo’s Tahrir Square Friday to demand the army reverse course and hand over full powers to the incoming president.

The power struggle “can only make negotiations more complicated because ultimately the issue of the IMF loan is one of ownership of a policy that could be difficult to sell to the Egyptian people,” said Gabriel Sterne, London-based economist at Exotix Holdings Ltd. The need to reach a decision is becoming “more and more urgent due to the situation of the balance of payment and the foreign reserves,” he said.

While Egypt’s currency reserves have risen since March, at $15.5 billion they are still less than half the level of February 2011, when Hosni Mubarak was forced from power. The current-account gap widened to $6.4 billion in the nine months through March, from $4.7 billion a year earlier, as tourism revenue and foreign investment shrank.

Egypt’s financial markets have welcomed Mursi’s victory, which averted the risk of renewed protests and violence if his rival, former premier and air force commander Ahmad Shafiq, had been declared the winner.

The benchmark EGX-30 stock index gained 0.6 percent at 1 p.m. in Cairo, extending its gain this week to 15 percent. Yields on its benchmark dollar bonds have dropped more than 1.2 percentage points, to about 6.6 percent. Default risk declined 12 basis points to 638, though Egypt remains among the world’s 10 riskiest credits, according to data provider CMA.

Mursi is working to form a national unity administration, and hasn’t named any appointees yet. He has pledged to include a woman, a Christian and a member of the youth activist groups among his deputies as he seeks to allay concerns that he will advance an Islamist agenda.

Field Marshal Mohammad Hussein Tantawi, the head of the ruling army council, will take the post of defense minister, Major General Mohammad al-Assar, a council member, told CBC television. Tantawi held the same job under Mubarak.

Ali said that an announcement about where Mursi would take the oath of office was due Friday. His campaign has said he wants to take the oath before the now-disbanded parliament. An alternative is the constitutional court, which ordered the dissolution.

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(The Daily Star :: Lebanon News ::

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