Egypt’s IMF loan: early signs of failure
Summary: the IMF has failed to appreciate how the linkage between
the Sisi regime and Egypt’s military-security complex cannot be broken
even as it demands changes to an economic model that continues to fail
the Egyptian people while building an enormous debt mountain.
We thank Maged Mandour for today’s newsletter. Maged is a political
analyst and a regular contributor to Arab Digest, Middle East Eye, and
Open Democracy. He is also a writer for Sada, the Carnegie Endowment
online journal. He is the author of an upcoming book, Egypt Under Sisi (I.B.Tauris)
which will examine the social and political developments in Egypt since
the coup of 2013. His most recent Arab Digest podcast “Egypt: the debt
ride rolls on” is available here.
On 16th December the IMF finally approved a new loan,
valued at US$3 billion, to help stem Egypt's deepening economic crisis.
In a first, the IMF used direct language to criticise the regime's
economic model, calling
for a rejuvenation of the private sector, the end of the privileges
enjoyed by military-owned companies, a reduction of public debt, and a
move to a flexible exchange rate. The early signs, however, point to the
failure of the IMF’s policy recommendations, stemming from a systemic
misunderstanding of the fundamental dynamics of Egypt's political
economy. It is a misunderstanding that is bound is exacerbate the
problem and deepen the crisis.
Arguably, the pillars on which the IMF recommendations are built call
for an end to the military’s position as a privileged economic actor
and for a levelling of the playing field between the public and the
private sector. Already, there are signs that the regime is moving to
circumvent these recommendations and working on deepening the economic
footprint of the military. For example, on 29th January Sisi issued a presidential decree
assigning to the military a stretch of land, 2km deep, on both sides of
31 roads. This is a tactic used to grant the military control over
these commercially viable pieces of land which it can then use for
profit-generating activities. Another example is the amendment
of Law 30 issued in 1975, which regulates the operation of the Suez
Canal. The amendment was given preliminary approval by Parliament only a
few days after the IMF deal was approved. The purpose of the amendment
is to open the Canal Authority for private investment through the
creation of a Suez Canal Fund, which on paper, seems to align with the
IMF recommendation of reducing the government’s footprint. However, the
fine print suggests otherwise. Indeed, based on a statement
from the president the new fund will be under the control of a
“sovereign entity”, a euphemism for the security services. There is also
no parliamentary supervision on the operation of the fund, and it seems
to function in a way that will allow the military to siphon off the
hard currency critical for meeting both Egypt's debt obligations and the
import needs of the population. Finally, there is the government’s plan
to sell off state-owned assets as part of the effort to meet its debt
obligations and follow the IMF recommendations. The first wave of
sell-offs includes 32 companies,
only two of which are military-owned. This includes the petrol station
chain Watanya, which seems to have been subjected to a process of asset stripping,
with most assets moved to another chain, Chill Out, owned by the
military. There are also some indications that the prospective buyer
ADNOC, the Emirati state-owned energy company, is backing out of the
deal. On 16th February ADNOC purchased
a 50% stake in Total Energy Egypt, from the French giant Total for
US$200 million, in a move that would indicate a shift away from the
purchase of Watanya due to resistance from the military establishment.
This all seems to indicate what many had predicted, namely that the IMF
recommendations would be met with severe resistance within the regime
and, given that resistance, implementation is extremely unlikely.
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