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Egypt Staves Off 'Revolution Of The Hungry'

A man reads a newspaper on an empty street in the Khan el-Khalil district of Cairo on February 17, a week after President Hosni Mubarak stepped down.
A man reads a newspaper on an empty street in the Khan el-Khalil district of Cairo on February 17, a week after President Hosni Mubarak stepped down.
Egyptians by and large are not known for singing the praises of the International Monetary Fund (IMF).

As in much of the developing world, the Washington-based financial institution was widely reviled in Egypt as the architect of the neo-liberal economic policies that made it one of the most unequal societies in the world under former President Hosni Mubarak.

Now, four months after Mubarak was driven from office by a tidal wave of revolt driven by economic discontent, the IMF has emerged in a different and unlikely light.

On June 5, the organization implicitly acknowledged it had been out of step with public opinion by announcing a $3 billion deal aimed at reviving a battered economy reeling from the recent social and political upheavals.

The pledge -- following similar promises of financial aid from the United States and Saudi Arabia -- was all the more remarkable in the context of the redistributive and expansionary polices being pursued by Egypt's interim government. The country's finance ministry last week unveiled a draft budget it said would help the poor but which has worried economists by threatening to send the national deficit spiraling.

But announcing the new package in Cairo, the IMF's deputy director for Middle East and Central Asia, Ratna Sahay, insisted the fund had no quibble with the government's policies.

"The revolution brought forth many expectations and hopes and demands that have been simmering with the people for a long period of time," Sahay said. "And as we can see in Egypt, one of the biggest priorities of the government is indeed social justice. And if that is the priority of the government, and if that is the priority of the Egyptian people, then we respect that priority."

Egypt's finance minister, Samir Radwan, while acknowledging the need for fiscal financial management, suggested the IMF's help came minus the strings that were attached to previous lending arrangements before the revolution.

"The steps that were agreed upon are steps that benefit us in administering the Egyptian economy during trying times," Radwan said. "They warn us to be conscious that the budget deficit should begin to decline at a certain time, to be conscious of inflation, and to be careful not to manage the situation in a certain way -- but that does not mean at all that there is any type of conditionality as there was in the past."


All told, it seemed like a radical volte-face from an organization that, just days before Mubarak's ouster, published a report praising his economic stewardship.

Surprising or not, all the indications are that it is badly needed. The IMF's intervention comes amid dire warnings about the parlous state of Egypt's economy and the impact it might have for the future direction of its fledgling revolution.

Following this year's turmoil, the country's tourism industry -- one of its biggest earners -- has all but collapsed, with the number of visitors dropping dramatically and revenues in March down two-thirds from $1 billion in the same period in 2010. The resulting rise in unemployment is being exacerbated by a flood of expatriate Egyptian workers fleeing the civil war in neighboring Libya, and many others returning from Saudi Arabia, which is scaling back its use of foreign workers.

Yet paradoxically, Joe Hammond, an RFE/RL correspondent in Cairo, says economics is one of the few areas where many Egyptians feel they have gained from a revolution that has in other respects failed to meet expectations.

That is partly explained by the populist nature of the country's first postrevolutionary budget, which raised the minimum wage, increased the salary threshold for tax exemptions, and ramped up subsidies on essential commodities like fuel by 26 percent. At the same time, workers have increased their bargaining power by establishing independent trade unions.

Economic Factors

The importance of such measures has been revealed by a new U.S.-government-funded survey which found that a majority of Egyptians backed the revolution because of economic concerns rather than from a desire for more democracy. The poll, by the International Republican Institute (IRI), also said eight out of 10 Egyptians expected their economic circumstances to improve in the coming year.

As a result, Hammond says, help from the IMF -- as well as from the U.S. and Saudi Arabia -- is seen as in line with Egyptian aspirations.

"These contributions are viewed positively. People see it as the international community supporting the revolution and they appreciate the kind of support you have now with the IMF. Then the Saudis have pledged a couple of billion [dollars] and [U.S. President Barack] Obama in his speech has pledged a couple of billion. So that adds up," Hammond says. "The subsidies for fuel, which keeps the price of cabs and the price of bus fares down, is going to be increased from around 10 or 12 billion to around 18 billion [U.S. dollars]. To afford those kind of massive subsidies on fuel and, of course, there is also subsidized bread in Egypt, and other subsidies that are really going to make life easy for people, you're going to need the kind of international investment that you have seen from the IMF."

Yet there are concerns that it will fall far short of what is needed.

Radwan, the Egyptian finance minister, has predicted that this year's economic growth will reach, at most, 1.5 percent. Even before the revolution, Egypt needed 6 percent annual growth to maintain its then unemployment rate of 12 percent, according to David Shenker, of the Washington Institute for Near East Policy, writing in the "Los Angeles Times."

A 'Revolution Of The Hungry'

Meanwhile, Major General Mahmud Nasr, a member of the governing Supreme Military Council, has openly admitted that the poverty rate could reach 70 percent and said he fears a "revolution of the hungry."

The country's foreign-exchange reserves are down to $28 billion, from $36 billion on the eve of the revolution. The new budget -- which has yet to be approved by the military council -- hardly seems designed to improve matters, envisioning $59 billion in income against $86.6 billion in expenses.

It all points to greater instability ahead, especially combined with continuing political disaffection among opposition groups which suspect the armed forced of plotting to highjack the revolution. That manifested itself on May 27 in a mass protest in Cairo's Tahrir Square, the site of the spectacular rallies that unseated Mubarak. According to Hammond, many opposition groups now want to postpone parliamentary elections due in November.

"One of the signs that I saw very frequently on Tahrir Square on May 27 and at other protests is: civilian rule, a constitution first," Hammond says. "These are becoming demands that have appeal across a lot of political groups. Egypt is to create a civilian ruling council. Yet at the same time, many of these same groups that were calling for these same things want to push back the election. They want to push them back to give the new opposition groups, the new left, and liberal groups more time to organize."

There is simmering anger too over the summary trials of protesters arrested since Mubarak's ouster while many of the old regime's leading figures (though not the former president, nor his sons) remain at large and about continuing human rights abuses, including the admission that 18 female demonstrators were subjected to forced "virginity tests."

If those resentments of the mainly educated young middle classes coalesce with renewed economic discontent among the masses, the IMF -- along with Washington and Riyadh -- could soon be forced to dig into its pocket again, this time much deeper.