April 7, 2013 4:11 pm
Egypt appears closer than ever to an elusive agreement with the International Monetary Fund on a $4.8bn loan to help stabilise its economy, stricken by the chaos and political gridlock that followed the toppling of Hosni Mubarak two years ago.
The IMF looks primed to do a quick and dirty deal, with the laudable aim of staving off the collapse of the Egyptian economy. Any accord should indeed have a politically realistic timetable, so long as the direction of travel is clear. So far, it is not.
An IMF anchor to reconstruction would be a substantial prize for Mohamed Morsi, the country’s president, low not just on cash and food stockpiles but on credibility. But his Muslim Brotherhood government faces parliamentary elections, now expected sometime in the autumn.
Yet Egypt is in a deep crisis. Its exchequer, topped up by handouts from Arab allies, is all but empty. The government can no longer finance a budget deficit heading for about 12 per cent of national output that will keep shrinking.
Nearly 40m Egyptians, close to half the population, live below the poverty line. The partial overthrow of Mubarak-era crony capitalism has led to an investment strike. Only the imprimatur of the IMF can start to unlock desperately needed financing.
To get that, the Morsi government needs to raise taxes and, above all, slash subsidies on fuel and then food. Untargeted subsidies inherited from the Mubarak dictatorship eat up an unaffordable quarter of the budget – more than the outlay on education and health. It would be much better to end subsidies and give cash handouts to the poor. There is no consensus for this, however, and the IMF is discredited for having long extolled Mubarak’s Egypt as a pioneer of structural economic reform.
Other political obstacles to a deal are formidable. After 85 years underground, the Brotherhood still behaves instinctively like an opposition, not a government. That is part of the reason for the almost daily street clashes between Islamists and the liberal and secular opposition. The Brothers are also struggling to move from identity politics to the tiresome specifics of policy.
Yet, in this tumultuous transition, Mr Morsi and his colleagues need to be clear on whether they intend to govern Egypt on behalf of all its citizens, or continue with what looks like a long march to capture every institution in the country – including a barely veiled attempt to have their Islamist capitalists take over from the Mubarak regime’s business insiders.
The Brotherhood leaders are operating a parallel and more powerful government alongside Mr Morsi’s. As part of this deal, the IMF must insist on all power being vested in elected, accountable and transparent government. This is the only way Egypt can be refloated, as an economy and as leader of the Arab world.
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