Special Euromoney Coverage: Reform is not a popularity contest, says Youssef Boutros Ghali

Theodore May
14 Min Read

CAIRO: Fresh off the plane from Washington, where he had gone to help address the global economic crisis, Egyptian Finance Minister Youssef Boutros Ghali sat down with Daily News Egypt on Sunday for a back-and-forth about his tenure and the economic challenges facing Egypt.

A commanding presence behind an even more commanding desk, Ghali spoke with confidence, and a certain amount of introspection, on his vision for plotting the future of the Egyptian economy.

The flat-screen television on his office wall flashing the latest BBC headlines and the computer screens behind him showing an array of economic data suggest that he is a man who likes to be in touch. Even his regret over forgetting how to speak Portuguese – his sixth language – presented the image of a man apart from what his secluded 16th floor office might suggest. The minister has already enjoyed an eventful tenure at the Finance Ministry, eliciting strong praise, and equally strong criticism, for his stewardship of the economy.

Now entering his fifth year as minister, Daily News Egypt asked him about his aspirations for the remainder of his time in office.

Popularity contest

His legacy, he hopes, will be “modernizing the financial tools at the disposal of the Ministry of Finance, all of the taxes, duties, etc.

“That I have modernized the management of the budget, mechanized it and put it on a sound IT footing, he continued, “Mechanized the payments of the budget, made use of electronic transfers, electronic signatures, etc.; increased the efficiency of public spending; and generally left a healthy budget, meaning a manageable budget; deficit, and the tools for my successor to be able to manage – to generate growth without inflation.

That’s what I would like to be remembered [for].

Early in the conversation, Ghali referenced the criticism that has been directed at him. Addressing it with a stone face and a level voice, he spoke like a man anticipating the vindication of history.

“Of course to achieve this, he said, referencing his goals as Finance Minister, “doesn’t get you popularity. You have to do things that are unpleasant. . If [the minister] doesn’t do his job, he’s popular. .But then I leave a budget that is in shambles . so I will have a very weak legacy in terms of history, but strong popularity while I am in office. Some of my predecessors chose this. They avoided unpleasant decisions, avoided unpleasant policies.

“I chose the other option. Of leaving a solid legacy that will, with time, be seen as what the country needed and at the cost of lower popularity today, lower approval in the street, but a tranquil conscience that I have done my best to improve the finances of the country.

Asked what decision had been the most personally challenging to him, Ghali did not hesitate.

“Tax reform. The reform of the income tax because it was a big gamble. If it didn’t work, it would have done some damage, not least to me personally; I would have failed miserably. And fortunately, we did it in a way that made it successful. And we were lucky too. A bit of luck, a bit of competence.

Crisis management

Conversation quickly moved to the global financial crisis, the full extent of which has yet to be felt in Egypt.

“On the financial side, Egypt is doing fine, he argued. “We were not that connected with the international financial economy, and therefore in terms of fallout from a financial side, it’s going to be relatively limited.

Outside of the financial sector, however, the minister predicted that the situation might deteriorate.

“From the real side, on the other hand, he said, “the fallout will be significant, depending on how significant the slowdown in the global economy is.

Egypt has, between 2001 and 2007, experienced a growth in foreign direct investment of almost $11 billion.

In a period of global economic turmoil like this one, companies tend to adopt a more protectionist ethos in order to weather the storm. When the economic troubles subside, therefore, multinational corporations begin looking for places to park their vast sums of un-invested cash.

Daily News Egypt asked the minister what measures Egypt should be taking during this period to make itself an appealing place for investors to do business a year or two down the road.

“The very policies that will be supporting spending during the transition period, say, the world recession, are the very policies that will make Egypt even more attractive when we come out of the recession, he argued.

The minister listed some examples of steps Egypt should take in the intervening period, including, “Loosening up investment constraints, loosening up the bureaucracy, speeding up project approvals, speeding up permits, increasing infrastructure investment, making sure that we are spending.

Subsidies and trickle down effect

As to how his policies would eventually trickle down to the country’s expansive lower class, Ghali gave much of the same high-level rationale, unwilling to expound upon specific bottom-up programs that might provide immediate relief.

“The fact that we have improved the tools at the disposal of the Minister of Finance, especially the tax rules – income tax, sales tax is going to be reformed, customs – puts at our disposal greater resources.

“And greater resources properly used can be directed towards lower income groups. Over the last four years we have affected the largest increase in government salaries in any four-year period before now. We have increased [food] subsidies significantly, he said.

From here the conversation veered towards subsidies. While touting the government’s commitment to helping feed its poor through food subsidies, the minister addressed the need to reform how food subsidies are directed.

“Right now they are not properly targeted and therefore there is a lot of waste. We cannot afford to eliminate the system we have until we have an alternative system that makes sure nobody drops off or falls through the net, the safety net, he said.

The Ministry of Finance, he added, is working on building a database through which the government can track the demographics of the lower-income population in order to maximize the efficiency of subsidies.


When pressed on how the ongoing economic crisis might affect the ministry’s plan to phase out energy subsidies, which might have a short-term impact on inflation, Ghali admitted that the developments of the past two months have changed the calculation.

“We need to rethink the speed at which we rearrange these subsidies, specifically because they have an inflationary impact. Therefore, you cannot, on top of recessionary tendencies, add an inflationary push. So for the moment, we are not going to reassess the energy subsidy.

Ghali briefly mentioned the ministry’s plan to reform the sales tax. “It needs to be upgraded to a full-blown Value-Added Tax, and there are changes in the law that are required. We are going to implement these changes, hopefully submit them to parliament sometime this year.

Since the new government took shape in 2004, it has pursued a steady strategy of privatization. When asked whether that strategy would be affected by recent economic developments because of the short-term job losses it would entail, Ghali denied any connection between job loss and privatization in Egypt.

“We have always been careful to introduce early retirement programs, job restructuring programs, retraining programs so that job loss is minimal with privatization. .We’re not worried about the impact on unemployment, we’re worried about there not being much demand for the assets that we might want to privatize.

Touching on another sensitive issue, Daily News Egypt asked Ghali how his ministry planned to increase employment as well as the number of skilled-labor jobs.

“Growth, growth, and more growth, he said. “If we grow at around 7-7.5 percent, this should more than absorb new entrants to the labor force and guarantee that, over time, we reduce unemployment to manageable figures, 4 or 5 percent. And that is the long-term strategy.
There may be a slowdown in the coming period, but hopefully not for long and not too much of a slowdown.

According to US statistics, unemployment in the Egyptian labor force stood at 9.1 percent in 2007.

Ghali was hesitant to address issues of inflation and interest rates throughout the conversation, citing the independence of the Central Bank, which sets interest rates, from the Ministry of Finance.

The Central Bank of Egypt has pursued an aggressive policy to combat inflation, through which it raised interest rates six times this year.

The CBE recently released figures that, for the first time this year, indicate a reduction in inflation. Given the current economic slowdown, however, will the Central Bank have to reconsider its interest rate strategy?

“I’m hoping that the monetary authorities, since they are independent and they do what they want, will probably adjust the monetary variables in light of the present circumstances, Ghali said.

Ghali at the IMFC

The minister had just returned from Washington, where he ran his first meeting as head of the IMF’s powerful International Monetary and Financial Committee (IMFC) and where he spent considerable time with many of the world’s leaders, who will be instrumental in guiding the global economy through tempestuous waters.

“There is a lot more cohesion among financial leadership in the world, he said. “They all seem to look toward the same direction. They have the same goals. It’s only a matter of time before they sit together and agree on a new paradigm for the world economy.

“It is not impossible . and it’s not that complicated. It just needs to be addressed in a systematic way, and I think this is what I hope my chairing the IMFC will achieve.

Most notably, in his role as head of the IMFC, Ghali affirmed a strong desire to realign the IMF and place it in the more proactive role it inhabited globally back in the 1990s.

At the conclusion of the conversation, the minister addressed some of the broader worries that the latest round of economic woes puts into question the sustainability of a global capitalist system.

“We’re past this issue about capitalism and socialism and all that, he argued. “This is no longer an issue of ideology. It’s an issue of what works.

“An unfettered free market that has no regulation, no rules, no nothing, obviously doesn’t work. And a completely managed market, as we have seen from the socialist, communist system, also doesn’t work. The ultimate solution is somewhere in between. We are finding ‘the somewhere in between.’

Ghali is clearly a man at home when wading through the technocratic jargon that defines much of his work. The overall expression of what he has achieved and what he has yet to accomplish as minister indicates his belief that meaningful change for each of Egypt’s 80 million citizens is made possible first through rigorous institutional reform.

He speaks with confidence about his work to streamline the country’s financial mechanisms and the limited impact that work has had throughout the country. Now he seems intent on writing a new act for himself, one in which the sacrifices of the past four years begin to yield rewards to the population at large.

If he is able to navigate the country through the global economic slowdown and translate his technocratic reforms into populist results, his next act as Finance Minister might be his sweetest.

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