Politicizing Egypt’s economic reform

While the gradual meltdown of the Egyptian constitution-drafting process has been at center stage in Cairo over the past few months, the negotiations between the Egyptian government and the International Monetary Fund (IMF) for a $4.8 billion loan have rapidly become central to political conversations in Egypt. Egypt has a checkered past with the IMF. While it views Egypt as a success story for structural adjustment and privatization during the infitah, Anwar Sadat’s economic liberalization, and the Hosni Mubarak-era transition away from state ownership, the Egyptian public associates the IMF with the human downside of structural adjustment policies: unemployment, rising prices, and increasing poverty. Even the IMF’s own policy papers on Egypt now admit that the "social outcomes were unsatisfactory" during the 1990s and early 2000s.

President Mohamed Morsi’s government has a real economic problem: a budget deficit around 11 percent of gross domestic product (GDP), falling tourism revenue, and difficulty encouraging international investment. Bilateral financial support has been forthcoming over the past few months, particularly from the Gulf states, but the IMF loan would be a key international indicator of approval for the regime, and would provide critical support for Egypt’s position in the world market. In fact, the loan has been supported by both the Muslim Brotherhood and some Salafi leaders, despite concern among other Islamists that the interest on the loan counts as usury and that the loan has been rendered haram. (The counterargument is that the low interest rate counts as a fee, and that no profit is being made; this is less than convincing to Islamist opponents, but serves as effective ideological cover for the Brotherhood.) The IMF had expressed a willingness to offer a loan package, provided that the Egyptian government drafted an economic plan that met with its approval.

The loan was not only opposed by Salafis. Left-wing political parties, economic and social rights groups, and socialist activist groups stated their objections and led small demonstrations in August when IMF Managing Director Christine LaGarde visited Egypt and preparations for the loan began in earnest. However, the opposition became much more prominent and sustained in November when the IMF’s technical team arrived. Opposition was mobilized on three fronts. First, there was a court case brought up by the Egyptian Coalition for Economic and Social Rights to the High Administrative Court demanding that the government reveal all the details of the economic plan. (Although the court postponed a final ruling on the case, it did require that the government release relevant data to the public.) Second, there were a number of public policy papers and statements, including a letter signed by a collection of political parties, civil society organizations, and independent trade unions, the ECESR’s position paper on the loan, and a trenchant critique by "Comrades in Cairo." Finally, there were street protests, again organized by left-wing parties, civil society organizations, and activist groups, rejecting the loans.

The objections to the loans from non-Islamist civil society centered around two issues. The first criticism focuses on the policy implications of an IMF loan. While the IMF no longer has strict conditionality requirements — that is, directly dictates the conditions that a government must implement in order to qualify for a loan — it  does require that the government submit an economic plan that the IMF deems conducive to stability. In practice, this means that governments must cut subsidies and enact measures to make their economies more attractive to international business. Advocates for strong protections for economic and social rights argue that these policies will not help Egypt’s many poor, and may only serve to support its upper classes.

The second major objection is based in concern about transparency. With the dissolution of the parliament, the executive is the only democratic representative of the Egyptian people; the judiciary is capable of serving as a check on executive power, but not as a force for reasserting democracy. Therefore, the diversity of opinion in Egyptian society goes unrepresented, and Morsi — who here is both the strongman in the mold of Mubarak, and the representative of Islamist forces in the framings of leftwing opponents — can act without restraint. That the content of the economic plan that was negotiated with the IMF was not publicly available until after the deal was agreed to only reinforced this worry: that Morsi would act unilaterally in ways that the Egyptian public would not support, but would be powerless to oppose. As Mahinour El Badrawi of the ECESR told me, "The end result is that the Egyptian public is denied access to any knowledge about the loans, and hence denied access to a real and informed decision towards an agreement that will govern the economic and social future of the people and the coming generations."

These criticisms are tightly linked. The argument about transparency is based in an argument that, if the Egyptian people were asked to evaluate further borrowing from the IMF, the necessary policy changes to secure it, and the consequences of those policies, they would reject it. However, these worries also represent two very different sets of political concerns. Specific objections to the nature of the economic plan are policy concerns, and are a part of ongoing political contention which would have existed under any regime. In particular, both the Egyptian Center for Economic and Social Rights and the Egyptian Initiative for Personal Rights were involved in policy work in opposition to Egypt’s international borrowing well before the revolution, and arguments critical of the effects of the infitah are hardly new on the Egyptian political stage.

The concern about transparency, however, reflects a new set of anxieties that are specific to the post-revolutionary environment. The fall of Mubarak’s regime and the gradual attempts to transition toward a functioning democratic system represent an opportunity for drastic change in Egyptian political life. But the story of the past two years has been one of gradual steps toward, and sharp regressions from, the democratic ideal, from the tenacity with which the Supreme Council of the Armed Forces (SCAF) held on to power, to the dissolution of the first freely elected parliament, to the gradual implosion of the Constituent Assembly and the lack of consensus over the draft constitution, to the extreme contention over the presidency and Morsi’s regular attempts to extend executive authority. Egyptians are justifiably worried that they threw a revolution and nothing happened: that an Egypt run by the Muslim Brotherhood will be just as non-responsive as one run by Mubarak’s secular business elite.

The policy concern as framed by groups like the ECESR, about whether IMF borrowing and the policies that accompany it are good for human well-being in Egypt, is not universally shared among the Egyptian political classes. There are many Egyptians who believe that the loan is necessary, and even among those working in poverty alleviation there is a strong belief that some of these changes to subsidy and fiscal policy are worth doing anyway. But this concern about transparency crosses over the lines of specific policy concerns, and cuts to the heart of the problem of post-revolutionary Egypt. How easily can a country transition to being genuinely responsive to its people and their concerns, if the structural incentives throughout the system continually encourage it not to be?

The Egyptian government and the IMF reached a technical agreement on November 20, although the loan won’t be official until the December meeting of the executive board. The policy measures mentioned include reforms to energy subsidies, an increase in income taxes on the wealthy, and an increase in sales tax and a transition to a value added tax (VAT). Interestingly enough, they also include an emphasis on transparency: specifically, the transparency of government budgeting and spending, and a business environment that’s less prone to cronyism and connections.

It is possible that this emphasis on transparency is a response to civil society demands. However, this form of transparency does not have the same connotations as the one upon which public demands are focused. For the IMF, transparency is a tool in the service of the proper functioning of a free economy: the informational tools that business leaders, investors, and governments need to make rational economic decisions. But for Egyptians who are worried about the Morsi government’s lack of transparency, it isn’t a tool for rational decision-making, but a tool for debate and contestation, for multiple actors to have different positions on a given topic. The IMF’s transparency assumes that once data is transparently available the decisions will be obvious. The opposition’s transparency believes that once positions are transparently available decisions will be contested.

Ultimately, the IMF deal has become less pressing in Egyptian domestic politics over the past week, since Morsi’s declarations of executive power have brought many Egyptians back into the streets. But the concerns that protesters are expressing now are exactly the same concerns that anti-IMF protesters have been expressing: that political power is too concentrated in a single location in the political system, and that there is not enough access to that position for those in opposition. Meanwhile, the IMF is worried about the Morsi government’s ability to implement its economic plan, given the current unrest, which puts the executive board’s approval into question. The challenge for Morsi’s government now is to manage demands for both kinds of transparency at once — which is made more difficult in that desire for one is often coupled with critique of the other.

Emily Regan Wills is a post-doctoral fellow at the Toronto Initiative for Economic and Social Rights at the University of Toronto. She blogs at ajnabieh.dreamwidth.org. Her research was supported in part by a grant from the Project on Middle East Political Science.