Press Release

Egypt: transitional government obtains loans four times as much as those of Mubarak’s time

2 February 2012 by Amr Adly


The IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
loan issue is looming again in the horizon, a few months after the rejection of a similar loan. It was claimed that the first loan was rejected because its conditions were unacceptable, however, such conditions were never revealed to the public.

Dr. Fayza Abu El-Naga, Minister of International Co-operation and Planning, who has previously rejected the first loan, started to refer to conducting positive consultations with IMF and confirming that this time, the loan is “conditionless”. She furthermore stated that negotiations are necessary to get a $ 3 billion loan from the IMF to support the budget.

Only three months earlier, Dr. Abu El-Naga had stated that Egypt is not in need of any loans to support its budget and that the Egyptian economy is rather in need of pumping new investments to expand and create more jobs. Today, she is talking about getting a loan to cover the budget deficit although this step does not help efforts exerted to achieve economic recovery, boost growth rates or create new jobs.

Why was the previous loan rejected, although Egypt’s credit rating was much better than now, which means that its negotiating position with the IMF was much better? Noteworthy, the IMF gives low-interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. loans under arrangements that stipulate economic or political conditions. Why are we conducting negotiations regarding the same loan, today, where Egypt is in a bad negotiating position, in view of its deteriorating political and economic circumstances? Whose responsible for such confusion and lack of sound vision?

The IMF was involved over the past two decades in drawing and implementing the economic and financial policies of Egypt, which led to low living standards, high poverty rates, and deterioration of public services and human resources development, as stated by the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

and UNDP UNDP
United Nations Development Programme
The UNDP, founded in 1965 and based in New York, is the UN’s main agency of technical assistance. It helps the DC, without any political restrictions, to set up basic administrative and technical services, trains managerial staff, tries to respond to some of the essential needs of populations, takes the initiative in regional co-operation programmes and co-ordinates, theoretically at least, the local activities of all the UN operations. The UNDP generally relies on Western expertise and techniques, but a third of its contingent of experts come from the Third World. The UNDP publishes an annual Human Development Report which, among other things, classifies countries by their Human Development Rating (HDR).

reports. Policies supported by the IMF resulted in the richer getting richer at the expense of the poor, and downsizing the public spending on health services and education offered to the majority of citizens.

Today, the government is negotiating again with the IMF to get a fresh loan, under the pretext that the budget deficit reached unacceptable levels. The government ought to have reviewed the budget after the revolution to be able to restructure it, taking into consideration the requirements of social justice and human resources development, instead of applying the same old policies of the former regime and its Minister of Finance who allocated more than 19% of the public spending for subsidizing fuel. The majority of such subsidy goes to capitalists and does not benefit the poor. One fifth of the budget also went to the public debt service Debt service The sum of the interests and the amortization of the capital borrowed. while the sums allocated for health, education and social security remained the same.
Rejecting or approving the IMF loan is not the problem but the concern lies in the absence of public participation and lack of transparency of the Egyptian economic scene.

The transitional authority purposely uses the scarcely announced financial data to serve its own interests through scaring the public from the revolution, at one time, or giving a rosy picture of the economy, at another. Absence of transparency, lack of enough data, and publishing information which is manipulated by the government or the ruling authority is still going on. There is another dilemma related to the fact that the economic team in the current transitonal government belongs to the former regime and its dissolved party. Such government does not have the legal right to get such huge loans that would lead to further burdens on the coming generations, without any public authorization or real parliamentary monitoring or the least measure of transparency that would allow the public to see for itself the obligations it would have to fulfill due to decisions taken by this interim government.

The same applies to the international commitments made by the Egyptian government after toppling Mubarak as they all lack transparency regarding the amount of the loan or its sources.

“The Popular Campaign to Drop Egypt’s Debts” monitored that the Egyptian foreign debt rose to hit around $ 35 to $ 36.3 billion during the past year, according to the Economist. This comprises loans obtained during interim governments without any public authorization or political legitimacy and without disclosure.

“The Popular Campaign to Drop Egypt’s Debts” stresses the fact that the current IMF loan is an odious one as the current government does not represent the Egyptian people whom it is negotiating on their behalf, and the donors realize that the current government is not a legitimate one. In case the government got a $ 3.2 billion loan from the IMF, the sum of loans obtained over the past year would be around $ 4 billion, which is four folds the average annual loans obtained during Mubarak’s era. This would pose a huge burden on the Egyptian people for years to come and thus would have to be addressed by the elected parliament and government.

In view of the Egyptian experience regarding the loan-related conditions imposed by the IMF, “The Popular Campaign to Drop Egypt’s Debts” insistingly rejects obtaining any loan from the IMF and finds it necessary to find alternatives to cover the budget deficit.

“The Popular Campaign to Drop Egypt’s Debts” hereby calls on the interim government to provide the full data regarding the economic conditions of Egypt, including the precise amount of foreign reserve, the budget deficit, the economic bases for obtaining external loans, and the IMF loan-related economic or political conditions.

“The Popular Campaign to Drop Egypt’s Debts” also calls for involving the elected parliament, not SCAF, immediately and without any delay, in reviewing the loan agreement and considering whether to approve it or not. We believe this is the least to be done.




Amr Adly is Political Economist. This press release has been translated from Arabic into English by Khaled Nagy for The Popular Campaign to Drop Egypt’s Debt

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