The IMF missed a chance to free the Egyptian economy


A crisis is only an opportunity if you seize it. By accepting a $3 billion loan for Egypt, the International Monetary Fund has once again missed an opportunity to pressure General Abdel-Fattah El-Sisi’s government to free the economy from the grip of its soldiers.

There is no denying the importance of the concessions the IMF apparently obtained from Cairo – a 200 basis point hike in interest rates and a more flexible monetary regime. The first will help slow inflation, which was 15% in September, its highest level in four years. The latter will allow market forces to determine the natural level of the Egyptian pound, an improvement on what analysts have described as the government’s “drip, drip” devaluation policy.

But these measures will not solve the main weakness of the Egyptian economy: the excessive presence of the country’s army in practically all important sectors, from infrastructure and housing to hotels – and in some unimportant sectors, such as water. in a bottle. By giving carte blanche to his former comrades-in-arms on the economy, Sisi has discouraged entrepreneurship and investment in the private sector.

At best, the loan will temporarily relieve Egypt of the blows its economy has suffered since the start of Russia’s invasion of Ukraine, which has raised import costs and made foreign investors nervous. The war can be blamed for both problems, but Egypt’s long-term economic well-being depends on building a robust private sector, minus the military.

Despite giving Egypt a $12 billion bailout package six years ago, the IMF has shown little interest in Cairo tackling the problem – until last summer, when he delicately raised the issue in a country report. Including military-owned companies in the broader category of state-owned companies, the report noted that many performed poorly and some “benefited from an uneven playing field”. This was, of course, a backhanded acknowledgment of the problem, but it raised hopes that the IMF would address the issue in its negotiations with the government on the new loan.

Scholars like Yezid Sayigh, a senior fellow at the Malcolm H. Kerr Carnegie Center for the Middle East in Beirut, have argued that the IMF and other international financial institutions “should systematically address the reality of military engagement in their programs and policy recommendations, and they should confront the problem head on in their dealings with the Egyptian authorities.

But in the negotiations for the $3 billion loan, “there is no evidence that any new pressure has been brought to bear on this issue,” Sayigh told me in an email. He describes the new agreement as “minimalist on all levels: debt-focused, exchange rate, etc. “. The Fund’s negotiators appear to have abandoned key elements of the platform it presented last year, such as “urging the state out of various economic sectors or pushing for a unified public procurement law, both of which are directly related to the environment in which (military-owned businesses operate.

For some critics, it’s not just a missed opportunity. “It’s an abdication of responsibility on the part of the IMF,” said Timothy E. Kaldas, policy officer at the Tahrir Institute for Middle East Policy. “He funded a flawed economic program for six years and now glosses over the problems.”

Sisi’s government has only paid lip service to the importance of removing the military from the economy. He pledged to list or sell some military-owned businesses, but was slow to follow through on those promises.

It is not clear that Sisi recognizes that he must act – or, indeed, that he has the political will. In the late 1990s, when then Chinese President Jiang Zemin faced a similar situation, he was able to order the People’s Liberation Army to withdraw from the economy. His authority as head of the Communist Party gave him the power he needed.

The Egyptian leader lacks such a political base and may feel too indebted to the institution he served to act against its interests. He will need to be pushed by foreigners, and who better than his country’s creditors?

The most obvious candidates are regional allies, such as Saudi Arabia and the United Arab Emirates, which have provided tens of billions of dollars in loans and investments to Egypt. Should military firms come into play, Gulf Arab investors, whether individuals or sovereign wealth funds, would likely be the most enthusiastic bidders.

But the Gulf monarchies have historically valued political stability more than economic prudence. They may be reluctant to rely too heavily on Sisi, whom they see as key to preventing the Arab world’s most popular country from descending into chaos. Memories are still fresh in Riyadh and Abu Dhabi of the last time that happened: the Arab Spring toppled the previous dictator, Hosni Mubarak, and allowed their nemesis, the Muslim Brotherhood, to briefly take power .

They would have preferred the IMF to lean in, but the Fund chose not to leverage – Egypt is its second largest borrower, after Argentina. As a result, the Egyptian cat remains nameless.

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This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Bobby Ghosh is a Bloomberg Opinion columnist covering foreign affairs. Previously, he was Editor-in-Chief of the Hindustan Times, Editor-in-Chief of Quartz and International Editor of Time.

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Christy J. Olson