IMF U-Turn in Jordan Shows Egypt Need to Engage Public on Policy
Mohammad al-Sheikh was among hundreds of Jordanians who joined protests against an increase in fuel prices, pushing King Abdullah II to scrap a policy aimed at meeting pledges to the International Monetary Fund.
“The government increased the prices in secret, like it was afraid of something,” al-Sheikh, an air conditioning salesman, said in an interview in Amman, explaining why he joined a street protest for the first time in his life. “This is provocative. We have the right to know.”
Al-Sheikh’s comment signals the new engagement among Arab citizens after the protests that brought down governments last year. A consequence is that the fiscal restraint backed by the IMF and investors is harder to implement without the kind of broad support that requires a public debate. That’s especially resonant in Egypt, where talks with the IMF on a $4.8 billion loan agreement have been on and off for more than a year.
Mohamed Mursi, Egypt’s first freely elected president, already faces near-daily strikes by labor groups empowered by last year’s uprising. After campaigning on the promise that he had a detailed plan to end Egypt’s worst slump for a decade, Mursi is coming under fire for stalling on the specifics of what his government will commit to in return for IMF money.
“If I were the government I would start talking in a language that the average man on the street would understand,” said Mohamad Al-Ississ, assistant economics professor at the American University in Cairo. “A quick solution is going to bring down the government with it.”
Egypt is seeking the loan after spending more than half its currency reserves in 2011, leading to concern it would be forced to devalue the pound. The budget deficit, at 11 percent of output, is the highest for five years and, according to the IMF, the region’s largest.
This year’s budget allows for 146 billion pounds ($24 billion) of subsidies for staples such as food and fuel, more than a quarter of all spending. Prime Minister Hisham Qandil has drafted a plan to reduce the bill by 25.5 billion pounds, Al Masry Al Youm newspaper said Sept. 24, citing an unidentified official.
The government says it can open its economic program to national discussion and still conclude an IMF deal this year.
That timetable compares with the two years Iran spent holding public debates before it started eliminating as much as $60 billion in subsidies, to ensure the cuts wouldn’t spark unrest. The Islamic republic won rare praise from the IMF for its “long and careful preparations to ensure the success of the reform and its support by the public.”
Qandil’s “young government” still has time to engage in more detail over policy, said Shadi Hamid, director of research at the Brookings Doha Center. “The Muslim Brotherhood will use all of its grassroots networks and parallel institutions to mobilize behind a public diplomacy campaign,” he said. “I think it can be effective.”
Expectations that Mursi, the Brotherhood’s candidate for president, and Qandil can square public pressures with likely IMF demands and reach a deal have helped bring Egypt’s borrowing costs down from record highs. Yields on the dollar bonds maturing in 2020 have dropped more than a percentage point in the past three months.
Some investors warn that the optimism is overdone.
Egyptian bonds “offer poor compensation for the risks,” Michael Cirami, who helps manage $12 billion at Boston-based Eaton Vance Corp. (EV), said by e-mail. An IMF deal is becoming more difficult because “as time passes the conditionality will likely increase,” he said.
Ministers have repeatedly told Egyptians that IMF money will come without conditions, though they typically involve policy targets that must be met before loans are disbursed.
Even some Mursi allies have criticized the delay in detailing economic policy. Abdallah Shehata said on a debate hosted by Cairo-based ONTV television that the government “lacks transparency.” Shehata is head of the economic committee of the Freedom and Justice Party, the Muslim Brotherhood’s political arm headed by Mursi until his election as president.
Mursi isn’t the first Egyptian leader to target reducing energy subsidies. Mubarak repeatedly pledged to do so yet never did, fearing unrest in in a country where one in five live in poverty.
The IMF has backed subsidy reductions in Jordan, Iran and other Middle Eastern countries.
“We recognize that this is a socially and politically difficult thing to do,” Masood Ahmed, head of the IMF Middle East and Central Asia Department, said of Jordan’s efforts to tighten the budget in a Sept. 18 interview. “They have to manage it. It will require difficult decisions.”
In Egypt’s emerging democracy, the IMF says a loan program would need a “critical mass” of support. The country’s new leaders aren’t on the right track to obtain that, said Elijah Zarwan, a Cairo-based senior fellow at the European Council on Foreign Relations.
They are “not treating citizens like adults by explaining the serious problems the country faces,” he said in a phone interview. “It’s a shame that since the uprising the government has continued the old style.”
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