Tuesday,25 September, 2018
Current issue | Issue 1284, (25 February - 2 March 2016))
Tuesday,25 September, 2018
Issue 1284, (25 February - 2 March 2016))

Ahram Weekly

Painful decisions

The government appears set to implement, if only gradually, further austerity measures. It would do well to widen its consultations ahead of this step, at least with the legislature, writes Ahmed Youssef Ahmed

Al-Ahram Weekly

In a meeting with a number of editors-in-chief and prominent journalists on 14 February, the prime minister said that a number of important economic decisions will be announced soon because we do not have the luxury to defer them. He added that some of these decisions were difficult and could be painful, but that there is no alternative.

However, he stressed that they will be implemented gradually, because the government does not do shock therapy, and that measures will be taken to protect the more vulnerable segments of society, such as ensuring that essential goods are available at affordable prices to the poor and limited-income sectors of society.

He described the government’s programme as a plan to “manufacture hope”. But another way of phrasing it might be, “Pain is gain.”

There is no disputing that we are in dire circumstances that require radical solutions. But the question, as always, is what is the best remedy, as economic engineers calculate it, on the one hand, and on the other, what is the best policy in terms of politics and society, as some balance needs to be struck to ward off the forces of obstruction or even collapse.

Naturally, the first question that comes to mind has to do with the nature of these forthcoming decisions. Generally, what immediately occurs to mind in such instances is that the government intends to make further reductions on subsidies for some essential goods, to raise prices on certain goods and services, or to levy new taxes.

There is little point, here, to predict the precise substance of these measures. What counts is what the prime minister said: that they would be “painful”. Which in turn begs the question: painful to whom?

Unfortunately, past experience has taught us that social considerations are rarely factored in when such decisions are taken, and the consequences are either disastrous or fail to bear their desired fruit. The most frequently cited example is the glaring instance of decisions that triggered mass riots in January 1977.

Certainly, in the current case, the prime minister was careful to stress that the anticipated measures will be “gradual” rather than administered as shock treatment and that they will coincide with measures to protect the more vulnerable segments of society. That is all very good. But the calculations must be extremely precise.

In my opinion, the required gradualness must be attuned to the circumstances of the poor and limited-income classes, of which President Abdel-Fattah Al-Sisi is well aware, as he pointed out in recent remarks to TV host Amr Adib. These circumstances should compel decision-makers to avoid contemplating any measures that would increase the burdens on the poor, who are already under more strains than they can bear. The problem is that previous governments have failed to redistribute the load to segments of society that are more able to sustain it. Attempts to levy a tax on stock market profits, and to introduce a more equitable graduated-income tax system, have been unsuccessful.

No one can deny that there has been some progress in attempts to find solutions to the mounting strains on the poor and middle classes. Examples are to be found in the increased availability and better quality of subsidised bread, the expansion of the social security system, and a solution to electricity blackouts. Nor can anyone deny that new national projects, whether large or small, have helped create new job opportunities and that everyone hopes that these and other achievements will continue and increase.

Still, we cannot yet claim that all is now well, or that the progress achieved will sufficiently buffer these classes from the effects of any “painful” measures. One also fears that economic technocrats do not appreciate, in practical terms, how fragile these classes are. To make matters worse, we are living in times when our country’s enemies at home and abroad are manoeuvring to exploit any available opening in order to penetrate society, shake its cohesion and turn people against whatever policies the government pursues. Such schemes are not limited to attempts to sow strife over political and economic issues; they have extended to other fields, including football matches.

The prime minister noted, correctly, that “we no longer have the luxury to defer” the planned measures. He went on to stress that the government has no other alternatives. This is impossible to judge without knowing the precise nature of the measures to be taken, even if his description of them as “painful” triggers our concerns over the direction they will most likely take, and all the more so as, regretfully, we can cite no previous successes in “painful” decisions that take social impact into consideration.

It is also a fact that any such decisions produce considerably more than their calculated fallout, as the moment they are taken anyone not on a fixed income rushes to increase their profit margin on products or hike up their fees for services to maintain their income levels in real terms. It is an old inflationary game.

In 2014, President Al-Sisi succeeded in persuading the people of the need to increase fuel prices. Drawing on his overwhelming popularity, he appealed to the people’s patriotic senses, urging them to spare the country, which was already heavily dependent on foreign assistance, from further embarrassment.

However, there have been new developments since then, not least being the declining value of the Egyptian pound and, as a consequence, continuing rises in prices. This leads us to strongly doubt that any further increases can pass without precipitating problems at a time when we need the highest possible degree of stability in order to move forward and realise our aspirations.

I am not an economic expert. But I do believe that I have a sense of the suffering of the poor and middle classes. At the same time, I cannot seriously discuss the question of the lack of alternative or the potential efficacy of the safety valve of “gradualness” that the prime minister spoke of until I see the actual substance of the decisions apparently taken.

Before these decisions are implemented I strongly advise decision-makers to broaden the scope of their consultations and to include parliament in these consultations, thereby ensuring an element of collective responsibility between the executive and legislature. I realise that broadening the discussion can have its downsides, but certainly it is better than taking decisions that do not sufficiently factor in social and political calculations.

The writer is a professor of political science at Cairo University.

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