Subsidy scare

What exactly does the government plan to do about subsidies on basic commodities, asks Amira Howeidy

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Thirty years on from the 1977 bread riots, when then-president Anwar El-Sadat attempted to cut subsidies on a range of foods, and the government is once again floating the idea of reducing subsidies on basic commodities. This time round, though, the word cut is being studiously avoided. It has been replaced by "rationalise". The aim, says the government, is to rationalise the subsidy system. Inevitably, the government's critics claim this is nothing but a prelude to cancelling the LE65 billion programme outright.

No official statements about what this rationalisation will involve have been made public, leaving up to 80 per cent of the population -- the number of Egyptians who benefit from the programme according to independent estimates -- holding their breath. The fate of half that number is quite literally in the balance: decline in real incomes has left 20 per cent of Egyptians living on the poverty line of $2 a day, and another 20 per cent eking out an existence below it. The most conservative estimates of inflation place it around eight per cent. Were subsidies to be removed many families simply do not know how they can afford to eat.

Hardly surprising, then, that the issue has been given such prominence in the press.

Independent and state-owned newspapers, which often seem to be reporting on two different and quite unrelated Egypts, for once agree on what story should dominate their front pages, though their interpretations display the usual dichotomy.

Pro-government papers give prominence to both President Hosni Mubarak's, and Prime Minister Ahmed Nazif's, assurances that there are no plans to cancel subsidies and that the aim of any reform of the system will be to ensure that subsidies reach those who most need them.

Opposition papers have sounded a far more alarmist tone. "The spectre of a 'revolt of the hungry'" read the headline of the opposition Nasserist Party's mouthpiece Al-Arabi on Sunday, "Terrified, the security apparatus stopped, temporarily, the [decision] to cancel subsidies."

In Egypt's political lexicon the "revolt of the hungry" -- thawrat al-giya' -- cannot help but revive memories of the massive bread riots of 1977, and in so doing furnish a haunting reminder of what could happen if economic policies continue to fail to reduce poverty levels.

Critics of the gradual shift from a state- controlled economy to a market-driven one that emphasises the private, rather than the previously powerful public sector, point to an acceleration of the process. It is led, they claim, by the National Democratic Party's Policies Committee, headed by Gamal Mubarak, which is pressing for a speedy and potentially disastrous turn in the economy in response to international demands.

Others have pointed to what they say are contradictions between President Mubarak's repeated pledges to defend Egypt's poorest citizens and Prime Minister Nazif's decision to "rationalise" subsidies and replace them with a welfare programme that provides cash payments to the most needy. When Nazif's statements were met with uproar in the independent press, Mubarak was quick to assert that state subsidies would remain but be directed "to those who most need them". Similar confusion appeared to prevail when Nazif announced plans to establish a new capital and Mubarak promptly dismissed the whole idea, insisting that "our priorities are for the poor". Such conflicting messages have left many wondering whether they reflect a prevailing chaos at the heart of the ruling establishment.

That, says Hussein Abdel-Razek, secretary- general of the opposition left-wing Tagammu Party, is unlikely. "The constitution clearly defines the dominating role of the president in shaping state policy. He has absolute power and the prime minister -- under the constitution -- only heads cabinet meetings. He does not run the cabinet and only follows the president's orders."

Al-Arabi' s editor Abdallah El-Sennawi on Sunday published a column in which he argued that Nazif's tenure as prime minister had been extended only so that he could take the blame for any reduction in subsidies. "Then he will be sacked in response to public anger while the subsidy cuts remain," he wrote.

It was perhaps in an attempt to quash such speculation that Nazif held a meeting with newspaper editors last week to explain that subsidies will remain, and will be revised only after thorough consultation with civil society institutions and political forces.

Abdel-Razek describes Nazif's position as "a temporary postponement" of the decision to "gradually cut subsidies over the next three to five years". The delay, he says, followed security reports presented to the president that warned of disastrous consequences -- even a revolution -- should subsidies be removed. The recent 10-day strike by property tax workers who camped in front of the Cabinet Office building demanding financial rights, Abdel-Razek argues, is "just a case in point of how public resentment and anger is driving people to take direct action in support of their rights".

Despite strikes being banned under the 26-year- old emergency law the authorities have been more or less tolerant of the labour strikes that have been a constant feature of the last 12 months and which have spread from factory workers to other sectors, including university professors and railroad staff. Political demonstrations, on the other hand, have been repeatedly quashed by anti- riot police.

Abdel-Razek believes the delay in ending subsidies is a temporary stopgap. The pressure to abolish the programme, led by the World Bank, International Monetary Fund and USAID, will continue, he says, and the government will find it impossible to resist.

Even supporters of the current system concede that it does not reach some of those who most need it. Head of Al-Ahram's Economic Research Unit Abdel-Fatah El-Gebali, a former advisor to Finance Minister Youssef Boutros Ghali, told Al-Ahram Weekly that due to the expansion of aashwa'iat (unplanned areas) "subsidised commodities often fail to reach the poorest whose needs, in any case, might include things that are not subsidised".

The need to revise, "not cancel", the subsidies programme has, he says, existed since the 1980s. "In fact such a revision could mean that the subsidies budget increases."

"It is because of corruption within the government and the public and private sectors that subsidies don't reach everyone who needs them," insists Abdel-Razek.

But whatever twist the pundits place on the government's seeming retreat from cancelling subsidies outright the arithmetic remains. Egypt is being pressured to balance its books. The government has a current account deficit of LE59 billion.

Subsidies cost it LE65 billion. The quick-fix solution is obvious, the costs in social cohesion unknown.