Tuesday,12 December, 2017
Current issue | Issue 1157, (18 - 24 July 2013)
Tuesday,12 December, 2017
Issue 1157, (18 - 24 July 2013)

Ahram Weekly

Free-market champions?

Sherine Abdel-Razek analyses the composition of the new government’s economic team

IMF loan
IMF loan
Al-Ahram Weekly

Coming at a tough conjuncture in Egypt’s history and with the economy reaching its worst point in decades, the economic team in new Prime Minister Hazem Al-Beblawi’s cabinet has the hard task of reviving an ailing economy amid an exceptionally turbulent political scene.
Consecutive cabinets since the 25 January Revolution have faced the problem of many high-calibre candidates for ministerial positions turning down offers in order not to be associated with the military or with former Islamist-backed rulers.
Another problem with previous governments, especially over the past year, has been the fact that the main criterion for choosing ministers has apparently been their political affiliation.
Two of Egypt’s finance ministers over the last year, for example, had academic backgrounds studying Islamic economics but no expertise in public finances or in budgeting in an economy where Islamic finance is currently almost non-existent.
The two ministers were affiliated to the Muslim Brotherhood, from which deposed former president Mohamed Morsi also came.
It is against this background that Al-Beblawi’s cabinet, which includes trained economists and technocrats, is the most competent since 2011.
The new prime minister himself, a former minister of finance, has headed the Export Development Bank for 12 years and worked with the UN and the Arab Fund as well as a number of regional economic agencies.
Taking the post of minister of finance is Ahmed Galal, who worked as a researcher with the World Bank for 18 years and has been the managing director of the regional think tank the Economic Research Forum since 2007.
Ziad Bahaaeddin, the new deputy prime minister for economic affairs, has a doctorate in banking law from the London School of Economics, ran Egypt’s investment authority between 2004 and 2007, and has sat on the board of the Central Bank of Egypt.
Ashraf Al-Arabi, a US-educated economist who served as planning minister under Morsi and was a main negotiator with the International Monetary Fund (IMF) on the hoped-for $4.8 billion loan was given the same post in the new government.
While praising the fact that the new cabinet includes many well-trained economists, Doha Abdelhamid, an economic expert working with many international organisations and who has worked with many members of the new cabinet, highlighted the fact that the posts did not necessarily match the individuals’ backgrounds.
“Galal is a very good economist, and he would have made an excellent minister of trade and industry. But his background does not match what is needed for the minister of finance,” Abdelhamid said.
The new cabinet includes 34 ministers, a fact that Abdelhamid finds a shortcoming. “This cabinet is supposed to be a national salvation cabinet that has to deal with the current problems quickly and start to deliver soon. The number of ministers should not exceed seven or eight as a result, in order to increase the possibility of a fast and smooth decision-making process,” she said.  
By looking at the CVs of the members of the economic team, it is obvious that prominent positions are taken by individuals associated with the neoliberal school of thought that advocates economic liberalisation, free trade and open markets, privatisation, deregulation, and decreasing the size of the public sector.  
However, it also includes two representatives of the far left, Kamal Abu Eitta, a veteran labour activist, as minister of labour and Ahmed Al-Boraai, who previously served as the minister of labour after the revolution and is an advocate of forming independent trade unions, as the economic solidarity minister.
This range of thought, according to Samer Atallah, an assistant professor of economics at the American University in Cairo, could be a problem for the new government. “The government has members from the left and the right. I am sceptical that this will create a common agenda,” he said.
“For example, you have someone like Abu Eitta who strongly opposes the IMF loan and you have Al-Beblawi and Galal who are advocates of the loan,” Atallah added.
Commenting on this point, Abdelhamid said that having a look at the cabinet indicated that there did not seem to be clear criteria for choosing members, except to have all the political parties represented and to cater for their demands, especially for those of the hard lined Salafist Nour Party.
“Why does the economic team have no female ministers, despite the fact that most of the economic departments in Egyptian universities are headed by women,” she asked, adding that there were only three female ministers in the whole cabinet.
The list of tasks of the new cabinet is also very long, topped by dealing with the country’s ailing finances, ballooning fiscal and trade deficits, depleted reserves, and weakening currency, as well as the lethal combination of rising poverty, inflation and unemployment rates.  
Economists believe that a government with members who have studied and worked abroad with well-known international organisations will make attracting investments and aid easier. The flow of Arab aid to Egypt since Tuesday, when it was announced that Al-Beblawi would be the new prime minister, is proof of this.
Al-Beblawi is a well-known figure for financiers in the Arab region. He worked for five years with the Economic and Social Commission for Western Asia, a UN body in Beirut which promotes economic cooperation among 17 Arab states. This was followed by a decade as an adviser to the Arab Monetary Fund in Abu Dhabi.
Energy-rich Saudi Arabia, Kuwait and the United Arab Emirates this week committed a collective $12 billion in loans, grants, deposits and fuel to shore up the interim government in Cairo.
According to Moody’s Credit Outlook Report, the aid package to Egypt from the three governments is positive for the country, as it will boost official foreign exchange reserves and offset pressures on the balance of payments, which will provide temporary relief from political and economic challenges.
As for the IMF loan that consecutive governments have been trying to secure since mid-2011, the new minister of planning, Ashraf Al-Arabi, told reporters on Monday that the aid from Arab states would carry Egypt through the transition period and as a result it did not need to restart negotiations with the IMF for the time being.
“The time is not appropriate to begin new negotiations with the IMF. Arab aid will enable Egypt to get through the transitional stage,” Al-Arabi said.
Egypt was on the verge of signing the loan deal last year, but Morsi’s government, under political pressure, backed off commitments to raise taxes and trim costly fuel and food subsidies.
The fate of these subsidies is now questionable. Al-Beblawi has bluntly criticised the energy subsidy programmes, which make up more than a quarter of the national budget.
“We must create a clear understanding among the public that the level of subsidies in Egypt is unsustainable, and the situation is critical,” he said in an interview with Daily News Egypt, a few days before he was asked to be prime minister.
“The cancelling of the subsidies requires sacrifices from the public and therefore necessitates their acceptance,” he said. “It is crucial that they understand the scope of the danger that the current size of the subsidies imposes on Egypt’s economy, and they must also feel that its rationing is done in a way that guarantees social justice.”
Atallah said that given the composition of the cabinet, he  expects  resistance to subsidy reform. A good indicator would be if the new government adopted the 2013/14 budget as it is and without changes.
However, few believe that the new cabinet will adopt unpopular measures before the parliamentary elections, slated for early February next year.  
The new budget for 2013/2014, which started in July, should have been endorsed by the Shura Council, the upper house of Egypt’s parliament earlier this month, but the latter was dissolved on 3 July.
Abdelhamid said the budget would be implemented as fast as possible, as work at some ministries had stopped because the new allocations for the ministries had not been endorsed yet.
The main policies of the new government are still unclear, but experts believe that it should start taking actions as soon as it is sworn in.
“Their task is not easy, and neither is the timing of their appointment, but the economy is on the verge of collapse and they have to act quickly,” Abdelhamid concluded of the new ministers.

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