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Accepting the IMF Loan: an Exception or Economic Policy?

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Logically speaking, a more transparent treatment of the loan deal would have allowed for a general discussion on all of the deal’s implications on the public realm

Farid Zahran

The Muslim Brotherhood-led government accepted a loan from the International Monetary Fund after having refused the same offer over the past months, prompting some to question the reasons and motives behind the decision. Similarly, questions are being raised regarding the IMF’s reasoning for offering the loan to Egypt, having had refused to lend to Egypt in recent months.

The Brotherhood had refused to resume the Al-Ganzouri government’s attempts to secure a loan valued at $ 3.2 billion. Using populist rhetoric, they condemned accepting the loan on the pretence that it was simply wrong out of principle. They also claimed that Egypt is an affluent country and should not need to borrow.

They asserted that the remedy to the country’s economic woes lay in recoveringthe state’s embezzled funds, which they accused the Al-Ganzouri government and the SCAF of failing to accomplish. They emphasised that the blessing that God will bestow upon us for the Egyptian people’s return to the way of the Lord would be potent enough to alleviate the crisis rendering the loan superfluous. Moreover, in lock step with the Salafist bloc, they described the loan as usurious and in violation of Shari’a law.

After conjuring up all of these political and religious justifications for refusing the loan, the Brotherhood then accepted a loan valued at $1.6 billion. This was done despite the fact that the SCAF has been dissolved and that Al-Ganzouri has become an advisor to the President, and thus there is no longer anything impeding the Brotherhood from recovering the embezzled funds, nor anything preventing a divine blessing from resolving the crisis.

The loan no longer violates Shari’a law because several prominent sheiks issued fatwas deeming the loan, in fact, not usurious. According to them, the loan does not contain interest because in their view, the 1% interest rate tacked on by the IMF is insignificant and therefore can be written off as an administrative expense. They of course are assuming that the masses are ignorant of the fact that the deal’s interest rate is merely the dollar’s global interest rate, overlooking the reality that the IMF has never issued any rate higher than this.

But enough with the Brotherhood’s unprincipled manoeuvring for now, let us return to the important issues: what are the economic, and possibly political, motives and reasons behind the IMF-Brotherhood loan agreement? It’s intriguing that there were no clear answers given to this question or to the speculations surrounding it. The vagueness surrounding the deal has stirred up widespread discontent and has once again moved the importance of transparency to the centre of public debate.

This comes after a period in which the country had suffered from a serious lack of available information concerning the public sphere and especially the political sphere. The lack of transparency had previously rendered the opposition incapable of presenting cohesive criticism or solid evidence against the ruling party, and thus had led, in addition to other reasons, to its marginalisation.

It’s also intriguing, or perhaps upsetting, that the loan is very large, approaching 22% of the total amount of foreign funds Egypt has borrowed over the past decades. Logically speaking, a more transparent treatment of the loan deal would have allowed for a general discussion on all of the deal’s implications on the public realm. This is important because the burden of repaying the loan might fall to another government under the assumption that, after the 25 January Revolution, Egypt will become a democratic country operating under the principle of the circulating power.

It is therefore probable that the burden of repaying this loan will have to be borne by a different government led by a party that itself did not agree to the loan, nor even partake in a serious debate concerning it. Simply put, it is not only incumbent upon the Brotherhood to disclose the information necessary for administering a serious discussion on the topic, but it must also engage in the dialogue and consult with all the main political forces in order to obtain their approval. The Brotherhood may not be in power when repayment of the debt comes due, so how is it they should laden other parties with the responsibility of dealing with the ramifications of decisions they have made unilaterally, without consulting or coming to agreement with other political forces?

We are face to face with an important decision, and the answer to the question which comprises the title of this article requires that much information be disclosed. If the loan were necessary to meet obligations deemed urgent and there are no other funding sources available capable of allaying these needs, then borrowing the funds is the only solution; that is, provided that there are no conditions mandating us to continue in this one direction and that we carefully study the ways and means to repay the debt.

However, until we obtain enough information to understand the loan in detail, we cannot welcome it. This is for two reasons: Firstly, the IMF has criteria that determine a good debtor who is capable of repayment. As a result of these criteria, Egypt, like many other countries subject to the IMF standards, saw its poor grow poorer and its rich grow richer. Secondly, the Brotherhood is inclined to pursue an economic and social policy that does not recognise the rights of the lower classes or take care of the impoverished, except in cases of charity and religious duty.

Therefore it is our right, in accordance with what has been presented, to consider the loan agreement between the Brotherhood and the IMF to be a continuation, or possibly even a revamping, of Mubarak’s economic policy.

 

About the author

Farid Zahran

Farid Zahran is a publisher and writer. He is the co-founder of the Egyptian Social Democratic Party


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