• 07:11
  • Thursday ,23 June 2011

Debate over foreign loans intensifies in Egypt

By- Reem Abdellatif-Amira Salah-Ahmed-Daily News Egypt

Home News


Thursday ,23 June 2011

Debate over foreign loans intensifies in Egypt

CAIRO: Even though news about Egypt rejecting a loan from the World Bank turned out to be false, the reaction to initial reports highlights the ongoing debate over whether the country should accept loans from global financial institutions.

Amr El-Tantawy, director of the technical office at the Ministry of International Planning and Cooperation, told Daily News Egypt the government has not yet reached a final decision regarding the loans as they are taking time to negotiate and study the budget plans in order to agree on a conciliated decision.
Some activists have repeatedly criticized the influx of promised loans and aid packages — billed as funds to help Egypt through this transitional phase — while analysts warned of dire consequences if conditions tied to this kind of financing are not considered carefully.
On Tuesday, local newspapers reported that Minister of International Cooperation Fayza Aboul Naga declined a World Bank loan because the conditions were not in line with national interests. The news was widely circulated, with apparent optimism among activists, but soon turned out to be a misquote of what the minister said.
At a meeting with the head of the Social Fund for Development on Monday, Aboul Naga had said, “Egypt does not kneel to dictations of the World Bank or the International Monetary Fund whether before or after the revolution. Egypt heeds its interests. No conditions harming Egypt’s sovereignty are attached to agreements on assistance offered by friendly states,” according to the State Information Service portal.
Shamshad Akhtar, World Bank vice president for Middle East and North Africa, told DNE in a statement that currently, Egypt already has an ongoing portfolio of $3.8 billion in approved loans.
In addition, “as we announced in advance of the last G8 meeting, we are in ongoing discussions over an additional $4.5 billion in support over the next two years, including $2 billion in development policy lending with a focus on governance reforms and employment generation, with $1 billion in 2011 and $1 billion in 2012,” said Akhtar.
The central aim of the program is to support the Egyptian government’s efforts to expand access to information, enhance transparency and accountability and generate employment opportunities, Akhtar said.
“These were basic demands of the recent developments that we support as they will help enhance governance and the well fare of the people of Egypt… how fast we can deliver this support, however, is largely in the hands of the Egyptian authorities.”
According to Hossam Bahgat, director of the Egyptian Initiative for Personal Rights (EIPR), the World Bank has asked Egypt to pass a freedom of information law, disclosure of assets and a ban on conflict of interest for government officials as well as full budget transparency including hidden “special funds.”
The debate
Those opposed to accepting such loans label them as financial intervention meant to influence future policy-making and economic structuring, at a time when the fight for the sovereignty of both is ongoing and as some would like to see the economic model changed.
Others who support it see these funds as vital to coping with the widening budget deficit in the coming period as the government has decided to raise the minimum wage and increase some subsidies.
Magda Kandil, executive director for the Egyptian Center for Economic Studies, told DNE the issues at hand should be calculated carefully in order to avoid setbacks in the future.
“If we do not enact the right policies now, we could be in a tougher situation in the future where will need to demand more support that would come with tougher conditions,” she said.
For some Egyptian activists, like Wael Khalil, who took part in the January 25 Revolution which ousted president Hosni Mubarak, the decision to accept such loans at this time does not bode well.
“We really have a kind of distrust with the IMF and World Bank and their dealings and their praise of the previous regime during Mubarak’s era,” he said.
“Not only are their problems with the conditions that come with these packages, but we shouldn’t be taking loans that aren’t needed and would go to subsidies of larger business, rather than development or to individuals in need,” he added.
During this transitional phase, Khalil pointed out, Egypt should decide on what kind of economy they are going to have, an economy that would adopt policies of social justice.
“We have to work against these loans, as long as their conditions are not favorable and do not recognize social justice,” he said. “It would be making a huge mistake getting rid of Mubarak without getting rid of the whole system that made the rich get richer before and widened the gap between the rich and the poor.”
Khalil added that the current transitional government has not “exerted any effort” to make any savings in the current budget or to specify where the money would be allocated.
“It is up to the parties who will be running now in the upcoming elections to propose what kind of economic policies they will adopt,” said Khalil. “The revolution wasn’t made so we would keep the same policies or to raise the capitalist race for friends of the Gamal Mubarak or the previous regime.”
For her part, Kandil said that this time around, the loan, which is uncommonly small for the IMF or World Bank, does not seem to carry the same conditions that would be unfavorable to Egypt.
“I would be surprised at this point when Egypt is in dire demand of money that we would turn our back to it,” said Kandil. “I’ve seen the proposed budget plan and most of the conditions that I’ve heard so far are general, and if they are specific they are targeted to help the economy.”
Kandil added that this specific loan with its conditions would not be interfering with Egypt’s policy management in any way.
“This is a small, one-year loan that suggests there was a compromise and reason not to load the loan with a lot of conditionality,” she added.
“Those who argue that we can’t accept the loan should be arguing or demanding that the government works out the proper conditions.”
Reuters reported in late May that the IMF is under pressure to soften its normally strict conditions as it thrashes out a lending arrangement for Egypt. “The IMF agreement is difficult because of conditionality. It should require reform measures. But the Egyptian government says it is not in a position to agree to any,” said a European diplomat.
The IMF instead will probably come up with a short-term agreement with very soft terms.
But Hisham Ramez, deputy governor of the central bank, told Reuters, “We definitely are not going to take any conditions from anyone. We will put the program that we see is for Egypt. We will not take any conditions.”