The Flaws of Egypt’s Anti-IMF Loan Movement
By Farah Halime, rebel economy
Egypt’s talks with the International Monetary Fund for a $4.8 billion loan should be frozen because the negotiations are secretive and lack popular support, Bloomberg has reported citing a letter released by 17 political parties, civil organisations and labour groups.
The letter is addressed from the Popular Campaign to Drop Egypt’s Debt, an umbrella group which has lobbied hard against the loan since negotiations started last year, the report says.
Among the signatories are three political parties affiliated with former presidential candidates, and a party set up by the Muslim Brotherhood’s youth wing, Bloomberg reports. The 6 April Movement, which took a leading role during last year’s revolution, has signed the letter, as well as unions active in Egypt’s labour movement.
The letter addressed to Prime Minister Hisham Qandil and the IMF chief Christine Lagarde says:
Loan negotiations process has “lacked transparency” from the government and IMF, talks continue in the absence of a parliament and public consultations have been “inaccessible.”
“With little transparency and no clear economic programme, the potential loan agreement continues to lack the ‘critical mass’ of support that the IMF requires as a necessary condition for financial assistance.”
Though an open debate about the loan is healthy, especially considering the rich history (Rebel Economy has produced a timeline covering three decades of Egypt-IMF talks) there are several flaws to this broader lobby movement, which will hinder any action against the loan.
Here are some issues that should be noted:
- The lobbyists, including the Popular Campaign to Drop Egypt’s Debt, see the IMF loan as one of the main causes of Egypt’s economic downfall today. However, history shows that every IMF loan programme is followed by a period of economic liberalisation and boom. But then incessant corruption and bad economic decisions took force. In fact the IMF told Egypt in the 1970s that subsidies should go, now widely considered to be extremely bad for the economy. However the 1977 bread riots in Egypt led leaders to renege on that decision.
- Those opposing the loan misdirect their suspicion at the problem of rising external debt. That’s not the real elephant in the room here. The real issue is spiralling domestic debt caused by a terribly indebted oil sector and mismanaged budget. External debt stands at about $33 billion. Domestic debt is about $200 billion. That is mostly caused by energy subsidies, which use up to a quarter of the government’s spending (more than health and education combined, and then some). If you want to talk about external debt, how about the billions of dollars not on the government’s balance sheet owed to oil companies for energy exploration?
- The alternatives offered by lobbyists include solutions inherently linked to the IMF. The most popular option is debt relief. That solution has been popular with the IMF and Egypt in the past and probably will be in the future. For example in the late 90s, the IMF facilitated a framework for obtaining the cancellation of 50 per cent of Egypt’s official debt from countries that are members of the Paris Club.
- Finally, as Nadine Marroushi, the reporter behind the story above points out:
“The problem is lobbyists don’t seem to have a unified and articulated front on what economic policies need to be implemented. The fact that energy subsidies need to be reformed hasn’t taken root on a grassroots level. People are so focused on being against the loan for all sorts of reasons, many very justified (such as inflation), some just plain ignorant (such as chants that go: “we’re against the IMF’s conditions, we’re against the CIA), but there isn’t enough public discussion and pressure about what the economic problems are and how they need to be tackled.”
If these groups want any chance in delaying a loan, there must of course be some kind of unity in why the loan is opposed. The reactionary approach to anything linked with the IMF must stop if a coherent conversation can begin.
But of course the government is mostly at fault. They have failed to open up a transparent dialogue on this negotiation process, leading to further suspicion and fury. And, attempting to pass off the loan as Shari’a-compliant is really not helping.
We know that fuel prices need to rise, and we know that Egypt needs international help (the US has in the past offered debt relief that has saved Egypt from bankruptcy). The government needs to address the nation clearly and firmly describing what needs to happen and why. We know big changes are going to happen because they must.
But the government’s weakness breeds suspicion and until Mohamed Morsy and his government can be strong, lobby groups and other political parties will hold them to account making the economic transition difficult.