The IMF loan to Egypt, and why we reject it
The proposed $4.8bn IMF loan to Egypt sparked a heated controversy. While the Government claims the funds are absolutely necessary to rebuild the country’s economy, opponents warn against potentially disastrous, far-reaching consequences. Their arguments are summarised here.
An anti-IMF protester in Cairo. Demotix/Mohamed Ali Eddin. All rights reserved.
Recently, some of Egypt’s leftist writers have tried to reject the proposed IMF loan to Egypt. And some have attempted to mobilize the people against it. The way the debate has been constructed would imply that Egypt has only one alternative to finding a vast supply of investments: namely, that the IMF greenlights its proposed package. Debt-swaps from several EU states have been put on hold or await the IMF loan agreement to be put forward.
The IMF and World Bank (WB) package particularly emphasizes that high-paying jobs might not necessarily be the best thing for an economy, because they cannot benefit all, a veiled threat against minimum wage and maximum wage caps. This of course leaves a number of Egyptians who protested for the introduction of a minimum wage confused. Instead of addressing these concerns, the WB has developed a nifty mechanism for ‘social justice’. The WB’s changed narrative of the ‘individual’ vs. the ‘collective’ aims to underline that it has indeed become a ‘new organization…much different than years ago’ as they claim in meetings. The message is clear : the WB has changed. In an attempt to shift its ontological roots, the institution’s work is now less focused on the ‘individual’, instead offering to address the needs of the masses. But the reality behind these declarations is different : the WB plans for Egypt make no mention of a policy to eradicate poverty or to put in place a social net. This remains the fundamental gap in the terms of the loan. More so, there are reports that the loan will increase to $6B should the subsidy regime be lifted.
This is of course a needed shift in intellectual thought, in order for neo-liberalism to morph and be sent to nations ravaged by social upheaval. After all, how do you greet the Breton Woods institutions that endorsed and turned a blind eye to corruption in privatization schemes run by the ruling party’s conglomerates who are now behind bars? This is another issue that plagues Egypt’s economy and is a major bone of contention with the Egyptian public. There has yet to be any mention of transparency mechanisms, freedom of information guarantees or even debates surrounding a socially acceptable privatization scheme that would not result in renewed corruption. The emphasis thus shifts to what is in the interest of the ‘state'; a China-like policy that rejects minimum wage as being something to strive for but only ‘at the right time’. Emphasis is placed on Egypt’s vast labor market and on ‘labor intensive projects’. Never mind the rising inequality. The more this ‘logic’ is repeated the more it becomes normalized and accepted; logic is formed by being preached.
The ‘logic’ is that low-paying jobs help lower the unemployment rate. But it immediately becomes clear that statistics and quantification themselves are a problematic notion in the Egyptian case, their ‘history’ being seldom mentioned. Years into Egypt’s Economic Reform and Structural Adjustment Program (ERSAP), a set of policies initiated by in 1991the Egyptian Government, backed by the WB and other international institutions, the country was hailed as having strong growth (in terms of GDP), and its economy was described as a ‘success story’. Little attention was paid to increasing poverty: every time it was mentioned it was shrugged off as an issue to address in the future. Economists claimed that the trickle-down process would take time. Poverty was to be solved in the medium run, at the price of a painful near future, bringing back memories of Pinochet’s efforts to implement the Chicago Boys’ neo-liberal policies in Chile. Statistics and benchmarks (themselves not above suspicion) are then readily deployed to shore up said success. Such economic policies can have disastrous social effect. For example, Turkey is often used as a successful illustration of growth, with no mention of its ailing rural society and heavy, forced urbanization. And Cairo shows how urban poverty can lead to violence: take for example the Bulaq incident, when the Nile Tower hotel complex was targeted by a neighboring impoverished area that used to survive off cash handouts to silence the disputed acquisition of land. This is another issue that is not mentioned: the urban-rural divide in the Egyptian economy.
Justifications for this short-term suffering are based on the ‘truth’ of ‘best practices’ and ‘internationally accepted standards': proponents of this line often fail to mention that these practices aren’t always the best and that there are alternatives. Debt-swaps, a cure that would both lower debt and increase investment, have been put on hold and aren’t mentioned anymore. Therefore it becomes accepted that the situation is so ‘dire’ that there must be some price to pay: the term ‘collateral damage’ has become a synonym for silent suffering. As Joseph Stiglitz put it, the WB’s policy is practically ‘creating poverty’. Similarly, the WB doesn’t mention Egypt’s informal sector (albeit it is the country’s biggest labor employer), which remains as mysterious as the dark side of the moon and will never be taken into account by any unemployment benchmark. The WB also assumes that a miserable job is better than no job. Clearly, they have not paid attention to what is happening in the ‘developed world’, where the social cost of more American jobs that pay less is becoming a heavy burden, leading some Americans to voice their suffering through gun violence. The IMF loan package doesn’t consider the possibility of increasing Egypt’s tax base by tackling the informal sector, fundamentally shifting their perception towards job creation. Ultimately, there are few in Egypt who remember what the WB’s ERSAP policy did to Egyptian farmers who received USAID. The introduction of new, automated means of production resulted in lay-offs, lowered crop yields and reduced the farmers’ income, making them poorer than they initially were. It is thus very disappointing to hear about more privatization schemes (set for Egypt by the WB) probably becoming cloaked conditions for the IMF loan.
But what does the WB have to do with the IMF? The loan is, after all, sponsored by the IMF. That is the single largest omission in the debate: double conditionality. Gouda Abdel Khalek, in a chapter on the Egyptian experience with the WB in Aid and Political Conditionality, details how the IMF will only finance an economic project if the WB greenlights it first and vice versa. This is of course not explicitly stated in any agreement, but every loan from each of these institutions is preceded by a similar loan or package from the other. As ominous as it sounds, before inviting the IMF to Egypt the WB signed a $200M loan project for ‘infrastructure projects and development’ in Egypt. Once the first IMF installment comes in and the next is being negotiated, it is likely that these projects, along with proposed privatization schemes that have nothing to do with the IMF, will be the ones on the table.