Egypt and the IMF: It’s complicated

EDITOR’S NOTE: The Egyptian government is confident an agreement with the International Monetary Fund can be completed within the next two months. But some Egyptians don’t think an IMF loan would help the country, Steven Cook of the Council on Foreign Relations says in his article in the From the Potomac to the Euphrates blog.

On Saturday, activists affiliated with the Popular Campaign to Drop Egypt’s Debt held a meeting at Cairo’s Press Syndicate to discuss ways to oppose the Egyptian government’s plan to sign a deal with the International Monetary Fund. Egyptian government spokesmen indicate that they hope to complete an agreement within the next two months. Negotiations have continued since Christine Lagarde visited Cairo in Augustand while the Fund’s representatives and the Egyptians have held the terms of the deal close to the vest because nothing has been finalized, there have been reports that the Egyptians would get five years to pay back a $4.8 billion loan (with a 39-month grace period) at a 1.1 percent interest rate. Even though Egypt’s needs are ten times more than what is currently on the table, an IMF agreement would likely unlock other sources of investment and loans by signaling to the international community that Egypt is a safe place to invest.

It all sounds like a pretty good deal, so why are people opposed? Hasn’t everyone been saying that “what Egypt really needs is economic assistance” because Egyptians are suffering and without “getting the economy on track,” Egypt’s transition will come to a perilous end? Isn’t the IMF going to help Egypt? That’s not exactly the way many Egyptians see it. Indeed, opponents of the IMF argue that the policies of the Fund’s social engineers—with the support of successive American administrations—actually hurt Egyptians who, as a result of privatization, free-floating exchange rates, deregulation, trade liberalization, and other measures, became poorer. This was especially so, according to anti-IMF activists, during Mubarak’s last decade in power when Cairo undertook these types of reforms in earnest after many years of resistance. Egyptians are thus wary of a repeat of the 2000s, with talk of a possible IMF-encouraged devaluation and changes to Egypt’s system of subsidies, which would improve the government’s balance sheet, but at the cost of significant pain for the average Egyptian.

There is, however, another reason why Egyptians are opposed to the IMF that goes well beyond the immediate effects of any proposed reforms and is rooted in Egypt’s tortured history with foreign intervention. Egypt was never colonized in the same way as India or Algeria, for example, but it did come under foreign control as a direct result of its poor finances, which were in many ways the result of the easy credit that European banks extended to Egypt’s rulers in the 19th century. There were investments in agriculture, the National Railway, and the Suez Canal, but there were also royal extravagances such as the Khedive Ismail’s plan to redevelop Cairo along the lines of Paris. By 1875 Egypt was so debt-ridden that the Khedive sold all of the country’s shares in the canal to the British Crown. The canal was a triumph of French engineering and financing, but it was also an Egyptian national asset that slipped away from the country to service debt to foreigners.

The following year, Ismail was forced to accept the joint British and French Commission on Public Debt, which supervised the repayment of the Khedive’s additional obligations to European banks. This was a deep affront to Egyptians’ nationalist consciousness, which began to emerge in response to foreign encroachment at the time. This produced a seven-decade nationalist struggle that began with Colonel Ahmed al Urabi’s revolt in 1882, included the 1919 nationalist revolution, and culminated in Gamal Abdel Nasser’s nationalization of the Suez Canal in October 1956.

Given this history, combined with the deleterious economic and political consequences of the IMF program, it is no wonder Hosni Mubarak dragged his feet when implementing neo-liberal reforms in the 1990s—he was the Egyptian vice president during the January 1977 “Bread Riots” that resulted from an IMF proposal to phase out subsidies on food—or that the Supreme Council of the Armed Forces rejected a proposed agreement with the Fund in June 2011, or that Prime Minister Hisham Qandil has been somewhat elusive about a new deal with the IMF. In the last few weeks Qandil has stated that Egypt may not actually need the entirety of the loan and has predicted that the economy will grow 4-5 percent this year (the IMF says it will contract slightly), all in an effort to signal to Egyptians that their government will not be subject to the manipulation and influence of international financial institutions.

Far too many analysts among the wonk circuit in Washington lack an appreciation for the complexity and sensitivity of Egyptians when it comes to foreigners telling them how to run their affairs. Christine Lagarde is hardly Napoleon coming ashore with all the tools of his “civilizing mission,” but for a lot of Egyptians her efforts have a whiff of neo-colonialism rooted in the humiliating debt commission of Egypt’s past.

Republished with permission from the Council on Foreign Relations. Read the original article.

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