In January, 2011, a wave of massive demonstrations overthrew the government of Egyptian President Hosni Mubarak. The revolution was greatly assisted by the American State Department, which had been busily furnishing secure digital communications devices to dissidents opposed to Middle Eastern and African governments the U.S. thought needed to go.
But when the Egyptian people elected as President Mohamed Morsi, the U.S. didn’t like it, he was ousted in a coup headed by a general, Abdel Fattah el-Sisi, trained at the U.S. Army War College in Carlisle, Pennsylvania.
But the combination of two revolutions and the ongoing shocks of the Great Recession sent Egypt spiraling ever deeper into debt.
Finally Sisi bit the bullet and applied to the International Monetary Fund for a bailout loan, and negotiations began.
The inevitable demand of the IMF: Austerity
The Economist, the magazine with the world’s richest readership, offers a neoliberal take on what happened next:
Back in August the IMF had offered the former general a $12bn lifeline, but it came with tough conditions attached. At long last he has fulfilled them, and the IMF money will soon start to flow.
So far Mr Sisi has attempted three difficult but necessary things, as demanded by the IMF. On November 3rd he allowed the Egyptian pound to float. It is now trading at a market rate of 18 or so to the dollar; previously it had been propped up at a crazily overvalued rate of about 8.8. However, it is still not clear whether this float is genuine. The pound could easily come under renewed pressure, and there is no guarantee that the government will not suspend the float and see the black market return. External credit-card transactions are still restricted, so the market is not free even now.
Similarly, the other two main IMF conditions have been fulfilled only up to a point. In August parliament passed a long-promised law introducing a value-added tax. It is subject to many exemptions; but it will still bring in badly needed revenue, and the rate is set to rise next year. The work of reducing government subsidies was also advanced last week, with increases of up to 50% in the local-currency price of petrol, after earlier rises in the price of electricity. But both are still well below their true market prices. And, lamentably, food subsidies have not been cut at all—despite their cost, complexity and vulnerability to fraud. Rather than subsidising the price of bread, the government would help more people if it simply handed out cash to poor Egyptians.
And now the loan is coming through
The International Monetary Fund approved a $12 billion loan for Egypt, an effort to revive the country’s struggling economy by “restoring stability and confidence in the economy, and implementing structural reforms that will create jobs,” officials said.
The approval allows for the first installment of the three-year loan, $2.75 billion, to be immediately disbursed. The remainder of the loan will be phased in over the duration of the program, subject to five reviews, the IMF said.
“The Egyptian authorities have developed a homegrown economic program, which will be supported under the IMF’s Extended Fund Facility, to address longstanding challenges in the Egyptian economy,” Christine Lagarde, IMF managing director and chair, said.
IMF officials said political instability, regional security issues and the global economic slowdown have hobbled the Egyptian economy. Some of the issues that led to the country’s economic instability included high government deficit, public debt and weak job growth.