Serving as a minster in successive governments from 1993 until 2011 and holding the portfolios of international cooperation, economy and foreign trade, and of finance, Youssef Boutros-Ghali was one of the engineers of Egypt’s economic policies over the last decade of former president Hosni Mubarak’s rule.
An advocate of a free economy and trade liberalisation, he represented Egypt in the Doha and Cancun meetings of the World Trade Organisation, as well as participating in the Euro-Mediterranean Partnership Agreement between Egypt and the EU in 1998. He was the head of the team negotiating the Qualified Industrial Zones Agreement with Israel and the US.
As minister of finance, Boutros-Ghali spearheaded major income-tax reforms in which he slashed corporate and income taxes, lowered tariffs, and deregulated key areas of economic activity.
The appearance of Boutros-Ghali on Egyptian television this week for his first interview since the 25 January Revolution stirred different reactions, as while the business arena sees him as a leading economic thinker others consider him to be a leading architect of the pre-revolution economic reform programme that benefited the wealthy at the expense of the poor.
Boutros-Ghali fled Egypt before Mubarak’s stepping down and was later sentenced to 30 years in prison in absentia on charges of squandering public money and profiteering from his position. He has been given political asylum in the UK.
Speaking to TV anchor Osama Kamal on the DMC TV channel, Boutros-Ghali said he completely agreed with the recent economic reforms that Egypt had taken in order to qualify for an IMF loan. He also hailed the floatation of the Egyptian pound in November despite the fact that he believes it came three years late, which exacerbated the problems and increased the sufferings of the poor.
Had he been in charge over the last six years, Boutros-Ghali said he would not have “suffocated” the foreign-exchange market to keep the exchange rate at a certain level. “The availability of dollars is more important than their price,” he said.
He said the increase in the dollar price following the floatation was normal as the same thing had happened in 2003 when the pound was devalued and the dollar surged from LE5.8 to LE7, before settling back down at around LE4.
Comparing the situation now to 2004, when the Ahmed Nazif cabinet included Boutros-Ghali as minister of finance and started a reform programme, he said that the country’s economic problems were now double the size they were back then.
There was a budget deficit, an unstable foreign-exchange market, and inflation, but less of each than now, he said. The international economy was also doing better and was supportive of the local economy.
Today, the budget deficit is the most critical problem facing the economy, according to Boutros-Ghali. He said that in order to cover the deficit the government had opted for printing money, creating demand that was not evened out by the supply of goods and thus increased inflation. The problem had got bigger when the government had decided to satisfy demand by importing goods, leading to a foreign currency crunch, he said.
It should have dealt with the deficit by tightening expenses, he said. “It should neither have recruited new people nor increased wages,” Boutros-Ghali said. “When you expand public expenses, you have to face the problem of a growing deficit.”
“In 2004, we had a deficit and printed money at a rate that equalled production increases. The economy was growing by seven per cent, giving us room to print money without fear of skyrocketing inflation as there was also an increase in production,” he said.
Increasing revenues through raising taxes is not an option Boutros-Ghali recommends. He believes taxes are already too high and says raising them would slow down the economy further. They should be low enough to make it more expensive to avoid taxes than simply to pay them, he said.
Attracting foreign investment (FDI) is one of the main means to push growth rates to as high as seven or eight per cent. In 2003, FDI stood at some $500 million, increasing to $13 billion in 2007. Even in 2008, when the financial crisis hit, FDI in Egypt stood at $9 billion.
To attract investment, Egypt needed a PR company to promote its image worldwide, he said. The world knows Egypt has touristic attractions like the Pyramids and beaches, but it hears most about terrorism and discrimination.
“The overall perception of the country is what counts. There is no good news about Egypt in the international media, and the visit of the Russian delegation to Egypt which praised the new airport safety measures was not sufficiently publicised,” he said.
He pointed to India, which had hired a company to launch an “Incredible India” campaign. This had started bearing fruit despite the fact that India’s bureaucracy was deep-rooted and it had many restrictions on investment in certain sectors, Boutros-Ghali said.
“We need to hire one of these companies, and its work has to be under the supervision of the highest authorities,” he said.
While he agreed that the tough economic decisions of the last two years had come amid social unrest following the two revolutions, these decisions had been inevitable, he said. “This is the first time we have had a regime that is willing to face such problems. Previous regimes long hesitated to take such actions, despite the fact that the economic conditions back then were more favourable to them.”
These problems, including inflated subsidies bills, date back to 1977 when increases in the prices of some food items triggered protests in the streets. “We never faced the problems seriously enough to solve them for fear of social unrest,” Boutros-Ghali said.
He called for setting up a detailed database of welfare and subsidy beneficiaries to make the system more efficient. “We need to know who and where the poor are. There is no database of them. They are not taxpayers. They do not have registered housing. They don’t even have ration-cards. How can we know anything about them,” he asked.