Guest Post: Why We Don’t Support Egypt’s IMF loan

Rebel Economy asked Ahmad Shokr, a Ph.D. candidate in Middle Eastern history at New York University and a founding member of the Drop Egypt’s Debt campaign, to lay out the key problems critics have with a planned International Monetary Fund loan to Egypt. 

[caption id="attachment_1221" align="aligncenter" width="580"]Drop Egypt's Debt ( Drop Egypt’s Debt [/caption]
  • 1. You are a vocal opponent of the International Monetary Fund loan. Can you explain why you are against it? Is it because of Egypt’s history of troubled relations with the Fund or the lack of transparency over the negotiations, or both?

Our campaign is mainly opposed to the policies that will be linked to the IMF loan. The government reform program (to be approved by the IMF) is aimed at achieving macroeconomic stability through three interrelated sets of policies—spending cuts, higher taxes, and greater exchange-rate flexibility. For the most part, ordinary Egyptians will foot the bill for these policies in the form of higher sales taxes and inflation (caused by the currency depreciation and, eventually, the subsidy cuts). These austerity measures will come at a time when many Egyptians had hoped for an improvement, not a deterioration, in their livelihoods.

Everyone agrees that Egypt faces serious macroeconomic challenges in the short term—namely its budget and balance of payments deficits. To begin solving these problems the government should have acted differently:

First, it should have fostered a more genuine and inclusive societal dialogue to reach a wider consensus on the required reforms and how their cost would be shared across society. Second, it should have begun to implement at least some policies earlier rather than relying on short-term palliatives (like depleting its foreign-exchange reserves to protect the value of the pound and relying on periodic cash injections from the Gulf). The government did neither. Now, Egypt faces a deteriorating economic situation and a reform program for which average Egyptians will pay most of the cost. And that’s to say nothing of the ongoing political mismanagement that contributes to Egypt’s economic troubles.

  • 2. Egypt’s economy has sunk even lower in the last few weeks. What are the steps Egypt needs to take to get on the right track? What is your version of the Muslim Brotherhood’s “Renaissance Project”?

Over the past year and a half our campaign has argued for more progressive policies in two key areas:

1) We have advocated a fairer distribution of the costs of fiscal restructuring. The government could do this by relying less on indirect taxes (that impose an equal cost on all consumers regardless of their ability to pay) and making a stronger effort to levy more taxes on the rich (for example, a more progressive income tax scale) and their business assets/activities (some ideas that were proposed have included a dividend tax, a one-time wealth tax, and a stronger property tax).

2) We wanted to see a clearer vision for what the government plans to do with the money it earns from the spending cuts/higher taxes. All the versions of the reform program that I have seen are centered on deficit reduction. Notwithstanding the government’s vague promises of job creation and inclusive growth, there is no clear plan for how much of that money will be re-directed towards investments, quality services and infrastructure, safety net programs, etc. A real reform program would have a much broader vision than simply adjusting public finances. There are important lessons to be learned from Europe, and other parts of the world, that a singular focus on deficit reduction through austerity is not the road to economic prosperity.

Any program for long-term economic improvement would have to look beyond immediate challenges, like Egypt’s twin deficits, and think further into the future. To my mind, two of Egypt’s biggest long-term challenges are employment and income distribution. 

We hear a lot from government officials about the need to revive the economy—by attracting investors and restoring economic growth—but less about the government’s vision for how the benefits of that growth (if it is restored) would be shared across society.

The experiences of many economies, especially over the last twenty years, tell us that trickle-down effects do not happen on their own. They require an infrastructure—minimum wage legislation, good labor laws, strong unions, a national strategy to promote investment in labor-intensive sectors—to spread the wealth of society more equally. At this stage, Egypt’s leaders have no clear vision for accomplishing any of those things. Until they do, any talk about investor confidence and economic growth will sound all too reminiscent of the late Mubarak years.

  • 3. There is a lot of talk about corruption in Egypt. Are there clear steps to start changing the system to end the era of the “soft state”?

To talk about fully eradicating corruption may be somewhat fanciful. State-business networks exist in virtually every country and the key question is what mechanisms exist to monitor these networks and hold them to account. Among the political leadership, there’s a lot of talk about establishing oversight and accountability procedures, but little of substance has been done so far. In 2012, Egypt fell six places in Transparency International’s annual Corruption Perceptions Index. Among those in power, there has been an ongoing preference for resolving corruption cases involving Mubarak-era figures through deal-making and reconciliation.

I would also caution against how the term “corruption” is employed. In Egypt, there’s a tendency to blame the ills of the past on corruption. Egyptian officials (and even international funders and experts) sometimes reduce Egypt’s variegated and complex challenges to the problem of corruption as if it were a root cause of economic misery. Sure enough, cronyism and kleptocracy are real problems that have damaged Egypt economically.

But the problems I’ve described above—income inequality, the uneven distribution of economic entitlements and responsibilities, job insecurity and weak social protections—are not simply the result of unethical economic behavior. They stem from the way economic decisions are made and, in particular, the adoption of certain neoliberal policy choices. It is erroneous to assume that ending corruption would somehow solve these problems by allowing free-markets to function efficiently and fairly.

Egyptian leaders need a more fundamental change in their perception of the country’s core economic challenges and a different vision for the future. Unfortunately, I am not optimistic, at least in the short term.

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