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IMF conditionality: Does it even matter?

With an International Monetary Fund (IMF) team in town and negotiations for a multi-billion dollar loan underway, Egypt’s Ministry of Finance put out a statement Sunday refuting claims that the IMF is imposing any conditions on Egypt.

“The ministry emphasizes that the program being discussed with the IMF is 100 percent Egyptian,” the statement says. “The program has been approved by Parliament and is part of Egypt’s Vision 2030.”

The ministry rejected “false reports by certain media” — a clear allusion to stories in the local press today, including a report by privately-owned newspaper Al-Masry Al-Youm citing an anonymous official who claims the IMF put forth 14 conditions for a loan, including a (rejected) demand that Egypt lay-off two million public sector employees.

The IMF has not yet put out any statements about a potential program for Egypt, but it too has been cagey about mentioning any conditions for the loan. When asked last week what an IMF program might look like, spokesperson William Murray referred reporters to recommendations made after a 2015 visit by IMF analysts. Still, Murray hedged his response: “I don’t want to appear to be prescriptive at this moment, in part because it might imply that these are the conditions that are going to be attached to IMF financing.”

In the 2015 Article IV Consultations referenced by Murray, we can see the IMF, too, laying the grounds for an argument that any structural reforms in an IMF program are borne out of an indigenous reform agenda. Just as the IMF and the Egyptian government both talk about social justice and eradicating poverty when promoting austerity measures, they both seem to be invested in presenting their ideas as homegrown ones.

In 2015, the IMF praised Egypt’s government for implementing “a wide-ranging set of reforms, including energy subsidy reforms, and progress in containing the wage bill and increasing tax revenues.” Head-of-mission Chris Jarvis also said the team welcomed “the authorities’ plans to pursue fiscal and structural reforms… Lower fuel and electricity subsidies, combined with the implementation of the VAT, would go a long way toward improving the strength of the budget.” The only real critique the IMF made — at least publicly — was to call for a more flexible exchange rate for the pound.

It’s certainly true that, after a brief flirtation with a stimulus plan, Egypt’s government has publicly embraced the ethos of fiscal discipline, give or take the occasional military-led megaproject. Did institutions like the IMF push Egypt into making these policies in the first place, or are these international institutions simply giving a stamp of legitimacy to policies the Egyptian government genuinely wants to implement.

While interesting to ponder, it really makes no practical difference: these policies are coming, and our energy is better used in analyzing them and contemplating how to cope with them.

Which came first, the chicken or the egg?

Egyptians might be forgiven for suspecting that the government is being less than completely honest when it denies the possibility of conditions being imposed. In late December, Minister of International Cooperation Sahar Nasr said the World Bank money would arrive within days, and flatly denied to the state-owned Al-Ahram newspaper that adoption of a Value Added Tax was a precondition of the loan.

Seven months later, the funds have still not arrived, and leaked documents published by Mada Masr clearly show that the VAT was a precondition of the World Bank loan — a point that officials have since conceded.

It matters, of course, whether or not officials are being honest with the public. But beyond that, the whole discussion seems largely beside the point. Insistence that austerity policies are a “100 percent Egyptian program” may assuage nationalist pride, but that won’t pay the electricity bill when subsidies are cut.

Does it really matter whether these policies are directly dictated by the IMF, or are simply the result of officials in Egypt and officials in Washington all ascribing to the same neoliberal orthodoxies about how to rescue Egypt from its current economic crisis? It’s hard to see how this makes any practical difference to ordinary Egyptians.

Frankly, one could argue that Egypt’s government might benefit politically — at least in the domestic sphere — from positioning itself as a victim of a Washington-led conspiracy.

This is a government that certainly doesn’t shy away from portraying itself as the victim of meddling foreigners with evil intentions, and Egypt is undeniably in a crisis and has for years been dependent on infusions of cash from abroad to keep the economy afloat.  Economic authorities have an opportunity here to portray themselves as champions of the little guy who unfortunately, as an absolute last resort, have been pushed into austerity policies by the nasty bully that is the IMF-World Bank-etc-conspiracy. Think here of the way Greece’s Syriza Party accepted a harsh bailout package while making clear they were doing it against their will.

Instead, the Egyptian government has chosen to argue that its negotiations with the IMF represents a convergence of interests, and that the IMF will be supporting homegrown policies rather than imposing external diktats.

Perhaps this is really true. Perhaps it’s not, but the government has more fear of appearing weak than it does of appearing to support policies that will bring hardship to ordinary citizens. Perhaps the government thinks a pro-austerity stance will win it points with the foreign investors it so desperately wants to attract. Perhaps officials learned some lessons from the pubic fallout and near-implosion of Syriza in the immediate aftermath of Greece’s bailout agreement.

Most likely, it’s some combination of all of the above. I doubt we’ll ever really know the real answer, but searching for it seems like a distraction. What matters right now is the policies that will be put in place in the coming months, and the effect they will have on the public.

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Isabel Esterman