The International Monetary Fund states that its main mission is to help resolve temporary disruptions to the economic balance of members states, including interventions in the general budget, trade policies and other matters related to financial and fiscal policies, such as interest rates and inflation.
There is no doubt that Egypt suffers from imbalances in all these regards, but this is not a new phenomenon; they have always been a threat to the economy, hence why Egypt has been a client of the IMF for the last four decades.
The issue is that these imbalances are not temporary ills. They have resurfaced as major issues at the beginning of almost every decade in the form of a crisis in foreign currency, inflation and a decline in growth rates. The link between these imbalances, both fiscal and financial, can be traced back to imbalances in Egypt’s development model and position in the global economy, for example the goods Egypt produces and services it provides — such as tourism and the Suez Canal — as well as where it obtains hard currency, what the country imports, and so on.
The IMF is akin to a skilled knee surgeon operating on a patient with a knee injury who also suffers from blood cancer
Understanding these dynamics requires more than a simple constellation of vague numbers and a knowledge of trade and capital transfers. It necessitates understanding the daily activities of people — their aspirations and consumption patterns, and hopes for their children. The immediate needs of the country must be considered in relation to its longer-term development, production and distribution.
It is in this context that the IMF is akin to a skilled knee surgeon operating on a patient with a knee injury who also suffers from blood cancer, as it never actually claimed to be concerned with the deeper structural roots of Egypt’s financial woes. The best the IMF seeks to do is to provide the capital necessary to redress the imbalances in the economy, hoping that this will in turn reduce inflation rates, stabilize the exchange rate and reduce the budget deficit.
But as soon as the country’s macro-economic indicators stabilize, the hidden hand of the economy sets to work, with a surge of local and foreign investors, reductions in imports and increasing exports. People in turn feel more secure and the lucky ones among us no longer need to smuggle their dollar savings out of the country.
Less attention is paid to who is investing and which sectors of the economy are benefiting from international competition. There tends to be an excessive dependence on the oil and natural gas sectors, which constitute more than 40 percent of our exports (and to which about two-thirds of total foreign investment has been directed since the 70s), and suddenly we are back to where we were at the beginning of the 80s, when the economy was at the mercy of global fluctuations.
While it is true the energy sector generates hard currency for the state, it also doesn’t create many job opportunities, as it is capital and not labor intensive. Along similar lines, we cannot depend on tourism in the current fragile security context, which looks set to continue. Egypt’s ambitions to expand exports are also shortsighted, after the collapse of the Egyptian pound to the dollar and within a context of shrinking world trade.
Considering all of the above, the IMF’s economic model of reducing the exchange rate, which in turn should lead to increasing exports, and increasing interest rates with the hope of reducing inflation, is not feasible when it does not take politics into account.
The issue is, and has always been, that an economic system such as this will only ever be capable of achieving development for a section of the population in Egypt. And while the stabilization of macro-economic indicators may be necessary, I don’t know, this remains a means to recovery and not an end in itself.
The rebuilding of Egypt’s foreign reserves through borrowing from abroad, coupled with economic stagnation, will most probably lead to an improvement in growth indicators within a few months. But will it stimulate growth? And will that growth be different from the years that preceded the 2011 revolution, which the IMF itself described as “growth without development”?
The issue is that these imbalances are not temporary ills. They have resurfaced as major issues at the beginning of almost every decade
This puts us in a confusing position. Those in charge of general economic affairs in Egypt seem to differentiate in a strange way between the money we need in the short term, which forms the primary rationale for the IMF agreement, and the requirements of longer term development. At the same time, these people adopt the view of the IMF and others (which at least is a vision, no matter how reactionary) that the economy will take off after macro-economic indicators improve and investors are convinced of returns.
This means the long-term objective is a return to a system of structural imbalances without any thought for treating the roots of the problem. The thinking is that if enough growth is stimulated, this will keep the imbalances in check, at least for a while.
So, where does this leave us? It leaves us in a critical position in which no thought is given to what people produce and consume, to the rising levels of unemployment, environmental sustainability, standards of living or the daily realities most people face. It reminds me of a song by Sheikh Imam written by Ahmed Fouad Negm:
“You ask me about the poor and their problems?
These are issues that need creative solutions.
I think we should seek the Lord in their resolve.”
Translated by Aida Seif al-Dawla