14 - 20 February 2002
Issue No.573
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Al-Ahram Weekly Online 14 - 20 February 2002 Issue No.573 |
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New money for old
International donors have pledged to raise $10.3 billion for Egypt over the next three years. The challenge is to use that money to build an economy that can withstand another 11 September
On paper, Egypt received more than it expected at the donors' conference held in Sharm El- Sheikh last week, boosting the stock market and restoring optimism. International donors pledged to raise $10.3 billion for Egypt over the next three years, including $2.1 billion to be disbursed this year, to help the country cope with the aftershock of 11 September, Khaled Dawoud witnessed the talks.
Decision-makers have been hounded by questions on how they plan to rescue the global economic turmoil offset by 11 September
photos: Mohamed El-Qi'i
But economic experts agree that implementing serious reforms in order to attract investment and enhance exports is the real challenge Egypt must face if it is not to beg for aid every time a crisis looms.
More than 10 years after initiating an economic reform programme agreed with the International Monetary Fund (IMF) and the World Bank, the Egyptian economy still relies heavily on tourism, Suez Canal revenues, oil revenues and the remittances of millions of Egyptians working abroad. As a result, the economy remains vulnerable to any shortage of the hard currency that balances the current account and pleases international donors and funding organisations.
After the 1997 massacre in Luxor, when 58 tourists were killed in a terrorist attack, the economy faced serious problems, which deepened further after several south Asian economies crashed and a worldwide recession bit. When Al-Aqsa Intifada broke out in September 2000, tourism revenues again fell, piling further agony on the economy. The deadliest blow came after 11 September, when tourism income plummeted by almost half, forcing the government to appeal to donors to help it face a balance of payments deficit of over two billion dollars.
While admitting the negative impact of regional and international events, experts agree that the government has failed to meet its most serious challenge: building an export-driven economy and making good use of the huge reserves of hard currency accumulated after Egypt took part in the US-led alliance to liberate Kuwait from Iraqi occupation.
The speeches made by delegates in closed sessions at Sharm El-Sheikh praised much of what the government has so far achieved -- but they clearly stated that much still remains to be done.
Lori Forman, head of the US delegation at Sharm El-Sheikh, said in her opening remarks that Egypt "has pursued economic stabilisation including macro-economic discipline and privatisation of public sector enterprises, and it now has entered the ranks of emerging economies....[Yet], as we are all aware, challenges lie ahead to Egypt's staying the course with its economic reform programme."
She added, "There is a critical need for policies that will return Egypt to greater levels of economic growth. A vibrant private sector produces the necessary jobs that reduce poverty and maintain long-term stability...Here I must emphasise that the government should implement reforms rapidly if they are to have an effect."
Forman outlined those "critical" reforms as, "A flexible, market-oriented monetary and foreign exchange policy; a financial sector assessment programme and public sector expenditure review; and important new legislation on property rights, labour, money laundering, tax and banking that will bring Egypt's business environment up to international standards."
Similar advice came from the IMF delegation, which asked the government to enhance "exchange rate flexibility," and continue with "monetary and fiscal restraint;" to "safeguard the banking system;" to "reinvigorate structural reform" and "to strengthen Egypt's macro- economic database."
Jean-Louis Sarbib, World Bank vice-president for the Middle East and North Africa, who co- chaired the Sharm El-Sheikh meeting with State Minister for Foreign Affairs and International Cooperation Fayza Abul-Naga, agreed that maintaining a flexible exchange rate policy was one of many needed reforms. Fielding repeated questions by journalists on whether donors had requested further devaluation of the currency, Sarbib replied, "You are focusing on one shoe in a whole outfit." He argued that many other measures are needed to build a sound economy. He advised Egypt to "Make sure that your products are competitive in the markets you export to," adding, "You have to make sure that business can be done cheaply in your country and that the conditions that are blocking investors, such as red tape and bureaucracy, are as little as they can be. To realise this, you have to have a good fiscal policy, customs that work and don't keep things in ports forever, access to foreign exchange, and a banking sector that functions properly."
On the Egyptian side, the stresses fell a little differently. In his opening speech, Prime Minister Atef Ebeid said that "during the period between March 2000 and the end of August 2001, the Egyptian pound depreciated by a cumulative 35 per cent against the US dollar." The government now hopes that the announcement by donors that they will quickly inject $2.1 billion into the economy will help stabilise the exchange rate and avoid further currency depreciation.
The government is worried, though, about the speed at which the funds will be disbursed. The World Bank's closing statement, issued after the Sharm El-Sheikh meeting, revealed that delivery of funds depends on IMF and World Bank approval of Egypt's macro-economic proposals. Sarbib cautioned that the sums pledged at Sharm El-Sheikh may not materialise if such reforms are not enacted swiftly.
Minister of Finance Medhat Hassanein told reporters that Egypt will hold intensive talks with donor nations to assure quick disbursement. "After the pledge is made, negotiations have to be held and agreements have to be signed and ratified by parliaments. This is a process which takes time: an average of six months to a year. But we will try to speed things up to conclude procedures in a maximum of six months." The form much of the aid will take -- whether grants, loans or other aid instruments -- also has yet to be decided.
Another worry is whether the money Egypt is to receive is all "new," or whether some was pledged in previous agreements or conventions.
Sarbib stressed that the $10.3 billion reflected "new commitments" from donors. Yet the US share of the $10.3 billion ($1.845 billion over the next three years) is "part of our ongoing plan," the head of the US delegation, Forman, told reporters in a news conference after the meeting.
Another diplomat from a donor nation, who requested anonymity, told Al-Ahram Weekly he doubted that all the money pledged at Sharm El- Sheikh was "actually new money. It might be money which has been in the pipeline for some time," he said. Another European diplomat held a similar view, though he took a different angle. "It might not all be new money. But money is always new, so long as you don't have it in your hands," he said.
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