I have been reading a lot of articles and posts about the IMF deal and Egypt. And while these articles/posts were almost universally well researched and well written, I felt a certain unease while reading them. I felt they were masterpieces of criticism of the IMF discourse that would only preach to the converted.

When I was doing my BA in International Economics, I often felt like an alien. I often felt that I was one of the few in my class who questioned the models we were given. When you have someone present you with an equation that proves that some theory is the ultimate truth, and that is done on repeat for 20 hours per week for three years, then you do think that economics holds the ultimate truth and right answers to everything. Once in a practice test we were given this question to answer “Prove, with the help of the models we have studies, that liberalisation is not necessarily bad for child labourers in developing countries”. Out of the five people in my study group, I was the only one who seemed to have some moral qualms about the way the question was phrased.

Back to the initial point, this well-written article on Jadaliya presents this salient argument:

“Egypt is, in many ways, shaping up as the perfect laboratory of the so-called post-Washington Consensus, in which a liberal-sounding ‘pro poor’ rhetoric – principally linked to the discourse of democratization – is used to deepen the neoliberal trajectory of the Mubarak-era. If successful, the likely outcome of this – particularly in the face of heightened political mobilization and the unfulfilled expectations of the Egyptian people – is a society that at a superficial level takes some limited appearances of the form of liberal democracy but, in actuality, remains a highly authoritarian neoliberal state dominated by an alliance of the military and business elites. “

I agree with a lot of the points raised. Except, I disagree with the way it is presented because it is the same anti IMF rhetoric every politics/sociology student/scholar reads about and is satisfied with. But guess what? the IMF people ain’t going to be worried about the same criticism they have been hearing since the 70s. And, whether I like it or not, the IMF is not going away any time soon and yes, it is a massive post-colonialist, capitalist archetype of an organization, but unfortunately this is the world we live in and these are the people that call the shots.

So if you want to win the debate, you have to ask questions in their own language. Personally, if Egypt were my country, I would want to ask the following questions:

  • Until after the announcement of the IMF and other loans were made, there was no publicly-available economic policy document that would outline how the loans were going to serve the broader objectives of Egypt’s economic policy. In a sense it is like an entrepreneur going to ask for a loan from the bank without a proper business plan. This document was released by the Ministry of Finance around the 5 June, while first news of the IMF deals were circulating as early as 17 May.
  • Why is a non-elected, transition government signing big loans with a long-term repayment plan? One reason could be that the budget year begins in the summer in Egypt, so the government has to make sure it has enough cash lined up to cover the expected 9-10% debt as proportion of GDP. However, reading the seemingly author-less policy document that appeared on the Ministry of Finance’s website on 5 June (link here) the following emerge:
    • “The budget includes a temporary allocation of LE 15 billion for additional spending—mainly investment–in education and housing. The housing investment is part of a broader initiative to fund the construction of one million low-cost, environmentally friendly housing units for the poor and young families over the next five years.” (P. 3)  So couldn’t this expenditure be delayed until an elected government can put in place checks and balances to make sure low-cost housing is not subject to the speculations some may make on the real estate market?
    • “We are also putting in place a program of 6-month training stipends to provide support for unemployed workers and new graduates, at a cost of LE 2 billion” (p.3) Again a very noble reason to take out loans, but investment in training only yields results in the medium to long-term – so why the rush?
    • “The budget includes a total allocation of LE 124 billion to finance food and fuel subsidies […] The budget includes policy funding of LE 13.5 billion to the Egypt General Petroleum Company and other
      4 economic authorities, as part of a longer-term process to restructure their balance sheets. This funding is conditioned upon improvements in operational performance, including clearing outstanding balances among public sector entities” so on one hand they increased the subsidy for petrol, on the other hand they pour 13.5 billion into an inefficient machinery whose end product they subsidise.

There are more points in the document that raise some questions, but in general, the way this policy document reads (in conjunction with the various media statements made by MOF so far) may push the semi-engaged reader like myself to wonder to what extent this outpour of money on spending right before the election is an opportunity to project an image of a transition government that is trying to fix in 6 months things that have not worked in 30 years, and on credit. I am not so much doubting the intentions of the policy, but rather the fact that an unelected cabinet is going to saddles the country with long-term debt to cover the current projected deficit and increase spending – when one may assume the IMF loans bankrolling the process to be contingent on budget cuts in the future.

Paraphrasing my previous post, it’s like when the state spends like a single man on a dinner date, putting everything on the credit card.

PS: Also on the previous post, this is what the economic policy document had to say about the inherent inequality of the current subsidy system

Subsidy reform: Reforming Egypt’s subsidies, in particular the inequitable and inefficient fuel subsidies, and replacing them gradually with better targeted income support and other social safety net measures will be critical to improve the effectiveness of public spending and support fiscal consolidation in the medium term. To get firmly on the way, we will prepare during 2011/12 a strategy to expand the social safety net, improve pro-poor and social programs, and undertake subsidy reform. One area that we plan to address early on is to improve the targeting of subsidized liquefied petroleum gas (LPG). The LPG subsidy has a very high cost and its benefits are largely captured by middlemen in the distribution chain, which has contributed to the emergence of a black market and shortages in the residential sector. Addressing subsidies will improve social justice (since benefits are mostly captured by the well-off), reduce waste, provide incentives for more rational use of the country’s natural resources, and create much-needed fiscal space.

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