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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Restoring the momentum of reform
Egypt should return to the IMF giving evidence of wide-spread support for such a move, argues Ahmed Abushadi
Without fanfare, the Egyptian government is seeking financial help from the International Monetary Fund (IMF) to mitigate worsening economic conditions including slow growth, widening fiscal and balance of payments deficits and persistent foreign exchange pressures. So far, the government seems determined that the money it receives from the IMF will be given virtually free of policy conditions.
IMF senior officials in Cairo, confirmed that Egypt withdrew about $150 million from its IMF reserves late last year. Egypt may draw that amount from the IMF in order to meet balance of payments needs. In such cases, the Fund does not challenge a member's statement of need; nor does it attach conditions to the withdrawal.
The officials also confirmed that Egypt is negotiating another $500 million deal under the Compensatory Financing Facility (CFF), a Fund lending instrument that has minimal policy conditions attached. Egypt could be eligible for such financing in view of the sharp temporary drop in its tourism revenues that resulted from 11 September.
But the government's aversion to adopting a new, full-fledged IMF-monitored programme is difficult to understand, particularly in view of the absence of a coherent strategy to deal with Egypt's persistent economic slump. This stance is even more baffling when viewed against the impressive achievements that Egypt made with Fund assistance from 1991 through1996.
Possibly the authorities are still haunted by unpleasant memories of previous confrontations with the IMF: the 1977 food riots and the 1994/95 open rift over the need for an exchange rate adjustment. But those memories have been overtaken by events or faded into distant history.
Significantly, at last week's meeting in Sharm El- Sheikh donor nations and funding organisations pointedly stated in their final communiqué that a credible macro-economic framework has yet to be put in place. Other comments underlined the importance of improving the foreign exchange system and the need to speed up other stalled reforms throughout the economy.
Many respected economists are on record supporting a new IMF-assisted programme as the only credible way to restore confidence and resuscitate Egypt's stagnant economy. Dr. Faika El-Rifaie, member of parliament and former deputy governor of the Central Bank, has repeatedly voiced her support for IMF-led reforms.
But most surprisingly, and contrary to conventional belief, an impressive majority of Egypt's general public are happy at their country's past association with the IMF. An even greater majority is confident that a return to a new IMF-supported reform programme will resolve the country's economic and financial malaise.
According to a little-publicised survey conducted by Al-Ahram Centre for Political and Strategic Studies in 2000-2001, over 70 per cent of Egyptians surveyed believe that past IMF-supported economic reforms have had a positive impact on the Egyptian economy in the last 10 years. Only 17 per cent of those queried said the reforms had a negative impact. And just 12 per cent thought the reforms had no impact at all.
An even larger majority (79.4 percent of those surveyed) believed that a new IMF-assisted reform programme will benefit the Egyptian economy in the coming 10 years. Only 13.4 per cent disagreed, while 7.9 per cent did not think a new IMF programme will have any impact.
When broken down, the results of the survey are even more intriguing. Of those who took part in the survey, 43 per cent came from an urban background, while 57 per cent were from a rural one (a proportion roughly similar to that which obtains in the country at large). The sample was confined to those aged 18 or older, with a margin of error of three per cent.
In the survey, two key sub-categories were identified: academics and members of the media. While 70 per cent of academics were positive about past and future IMF-supported economic reforms, media professionals were less impressed: 56 and 61 per cent expressed support for past and future programmes respectively.
A remarkable percentage of media professionals (40 per cent) thought past IMF-assisted reforms negatively affected the economy. But when looking ahead, the number of sceptics in this group declined to 31 per cent, against the 61 per cent mentioned above who thought a future programme over the next 10 years will have a positive impact.
The survey is particularly significant in that it goes beyond Egypt's relations with the IMF and addresses the wider attitude of the Egyptian public towards economic conditions and reform policies.
Consistent with its findings regarding relations with the IMF, the survey reports even wider support for a greater private sector role in the economy, for Egypt's partnership agreement with the European Union, for future foreign direct investment and for membership of the World Trade Organisation. On privatisation, those surveyed were almost evenly divided about its past and future benefits.
Observers of Egypt's recent economic developments question the wisdom of the government's delay in seeking IMF counsel on how to overcome the current crisis. They feel that the success of the comprehensive reform programme of the 1990s is fading fast, and may soon be lost unless the government formulates a follow-up programme either on its own or with assistance from the IMF.
A so-called IMF-shadow-programme may be a useful instrument should the government be concerned at the IMF imposing unpalatable conditions. Under a shadow-programme, no Fund financing is provided, yet a comprehensive policy framework is drawn up, and follow-up consultations are conducted periodically to assess implementation and introduce any necessary adjustments.
Before formulating a reform programme supported by international financial institutions, Dr Karima Korayem, an economics professor and advocate of market reforms, feels that the government should first assemble a team of experienced economic advisers. Such a group could provide much-needed counsel to the government, as well as constitutes a team credible enough to negotiate an Egyptian-inspired reform programme that promises wide public support.
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