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The Egyptian government entered negotiations with the International Monetary Fund for a US$4.8 billion loan on Wednesday, taking the most concrete step in accepting the money since the loan was first proposed over a year ago.
Following a meeting with Managing Director of the IMF Christine Lagarde and President Mohamed Morsy, Prime Minister Hesham Qandil said in a press conference that they had begun to discuss the preliminary details of the loan, larger than the original $3.2 billion figure that officials were tossing around up until a week ago.
The loan comes a week after Egypt also received some financial relief from its Gulf neighbor Qatar, which announced that $2 billion would be deposited in the Central Bank’s account to alleviate the country’s currency crisis.
The confirmations of both the IMF loan and the funds from Qatar mark a distinct turn from the pattern of the past year. Since the uprising in January 2011, Egypt has approached the Fund twice with no result, and promises of money from Gulf States have largely gone unfulfilled.
Promises and pledges
Mention of a $3 billion IMF loan was first heard last June, when IMF officials said Egypt needed the funds to promote social justice and jumpstart an economic recovery.
“Following a revolution and during a challenging period of political transition, the Egyptian authorities have put in place a home-grown economic program with the overarching objective of promoting social justice,” said Ratna Sahay, Deputy Director of the IMF’s Middle East and Central Asia Department.
But talks stalled after there proved to be strong political objection to the loan and its accompanying conditions. Many associated the fund with the free-wheeling and corrupt privatization policy of the Mubarak regime, which borrowed money from the IMF, or objected to the lack of transparency afforded by a non-elected transitional government.
At the same time, Gulf countries continued to pledge financial help at little to no cost. The Egyptian government decided to rely on Gulf money instead of other international institutions.
But the Gulf money that came through didn’t meet the government’s needs, so officials returned to the Fund in January 2012.
By then, the Muslim Brotherhood’s Freedom and Justice Party was among those who were most skeptical of what the loan might entail, and how the money might be handled by the interim government.
“We told the IMF mission that the government is not transparent in how it spends the state budget,” Abdel Hafez al-Sawy, chairman of the FJP economic committee, told Al-Masry Al-Youm in March.
Also in March, then-frontrunner presidential candidate Khairat al-Shater told the Financial Times that it was “illogical” for the current interim government to borrow from the International Monetary Fund, saddling the coming administration with the debts of a former, unelected government.
IMF officials backed off, saying that political consensus, including that of the elected Parliament, was necessary for the loan to be approved. But the officials made it clear that when Egypt had done the proper preparations, they would be waiting.
“The IMF mission will remain in close contact with the authorities in the coming weeks as they finalize remaining details of their economic program, including the 2012/13 budget, and mobilize the required political support for this program. A financial arrangement to support Egypt’s economic program will be presented to the IMF Executive Board once this work is completed, and external financing from bilateral donors and other international institutions is confirmed,” an IMF press release said following the visit of an IMF delegation in April.
Since then, Egypt formed an ambitious budget, likely upon some recommendations from the IMF. The budget aims to increase spending by roughly 12 percent over last year’s amount — a tiny increase in real terms as inflation has averaged about 10 percent over the past year — and also substantially cutting energy subsidies.
This, along with the election of Morsy and his Cabinet and the dissolution of Parliament, now seems to have created a political environment in which accepting the loan is a viable option for the current government.
Transparency and austerity
But activists remain wary of both the loans and of Gulf funding, of which the government has provided few details. They say the government is resorting to borrowing money when it should be making deeper structural changes to address the demands for social justice that spurred the 25 January protests.
The Popular Campaign to Drop Egypt’s Debt objects to the IMF loan on the basis of the secret austerity plan they said the government presented in order to receive the loan.
Following an April meeting with former FJP MP Saad al-Hosseiny, then head of the People's Assembly Budget and Planning Committee, the group released a critical statement saying the "so-called 'reform' program" was focused on lessening the budget deficit and not on creating jobs.
They said the plan included amendments to Egypt's income taxes, the possibility of introducing an across-the-board sales tax, raising the rent on agricultural lands, and lifting Egypt's long policy of subsidizing energy, gasoline and gas.
“The main problem is they’re taking loans without reassessing how the economy works,” Phillip Rizk, a member of the The Popular Campaign to Drop Egypt’s Debt, told Egypt Independent. “There’s been no real change in policy issues.”
Rizk said the campaign sent members to protest in front of the Cabinet building where the IMF press conference was held. Also present were members of the Free Revolutionaries movement, who chanted, “No to impoverishing policies.”
On Wednesday Lagarde and Qandil both emphasized Egypt’s oversight and control of the financial plan for loan, saying it has been initiated and designed by Egyptian experts.
Lagarde also downplayed concerns over the absence of a legislative body during the talks over the loan, saying that the process would be gradual.
“This is Egypt’s journey,” she said.
Following the meeting, Lagarde released a statement on the IMF website listing some of the issues the loan seeks to tackle.
"The Egyptian people have legitimate expectations for a better life and greater social justice. We at the IMF, stand ready to help,” the statement read.
And the prospect of the loan could already be having its effect, though none of the money has yet arrived. The loan is seen as a vote of confidence in the government’s budget and fiscal plan and an indication that it is safe for foreign investors to return to Egypt.
In January, Qatari Foreign Minister Khaled bin Mohamed al-Attiya said Qatar had not invested the promised $10 billion in Egypt due to the country’s instability.
But when Emir of Qatar Sheikh Hamad bin Khalifa al-Thani announced that Qatar will deposit $2 billion dollars in the Central Bank of Egypt last week, he also said that a Qatari delegation of specialists would be coming to Egypt in September to study opportunities for investment.