Monday, February 20, 2012

Egypt: No Break with Mubarakonomics

By Bisan Kassab 
February 20, 2012

Egypt’s former president has been ousted from office but his policies to protect the rich and corrupt, and many of the people who oversaw them, remain firmly in place.

Cairo – "Where has the bread gone?" That is the question in Egypt today. It was largely for bread that the multitudes who took to the streets on January 25 last year first chanted: "Bread, freedom, and social justice!" The people are still chanting, and the bread is still hard to secure.

This is largely due to the simple fact that one year after the toppling of President Hosni Mubarak, nothing has changed on the economic front in Egypt.

Successive governments desperately avoided any solutions that might entail any redistribution of resources.
The state budget for 2011-2012, the first after the revolution, is a good example. It was drafted by Samir Radwan, the former finance minister in the ousted, post-revolution governments of Ahmad Shafiq and Issam Sharaf. He was also a member of Mubarak's now-dissolved National Democratic Party.

Radwan insists on describing himself as a "Keynesian" economist. That would imply that he supports some state intervention in the economy, such as increasing expenditures and raising salaries to bolster demand. But there was no sign of any such policies in his budget.

He had promised an "expansionary" budget in terms of the state's role, and said he would finance it through external borrowing. But the ruling Supreme Council of the Armed Forces (SCAF) overruled his foreign borrowing plan and he quickly retracted his promises.

Plans to raise the tax-exempt wage threshold – which would have spared Egyptians earning less than Egyptian Pounds (LE) 1,000 (US$165) per month from having to pay income tax – were scrapped. The Employment Training Fund was slashed by half, from LE2 billion to LE1 billion (US$165 million). Total spending on education fell to LE51.8 billion (US$8.5 billion) from LE55.7 billion (US$9.2 billion).

Thus, in the “revolution budget,” education spending dropped from 3.5 to 3.2 percent of GNP. This all took place in a country with a school dropout rate of 27 percent, and where 10 percent of the population never attended school in the first place, according to the UN Human Development Report.

The choice was clear: either foreign borrowing or austerity. Successive governments desperately avoided any solutions that might entail any redistribution of resources. For example, the moment stock market investors objected, Radwan had to retract his proposals for a mere 10 percent tax on share dividends and acquisition and merger transactions. He also refused to raise revenue through higher income taxes for the rich. But he kept in place the LE95.5 billion (US$15.8 billion) allocation to subsidize oil derivatives, most of which constitute payments to oil companies.

Tantawi oversaw many of these same corrupt deals.

The irony is that Radwan himself identified the country’s gross income disparities as the very cause of the revolution. He pointed out during a press conference that the World Bank mission that left Egypt on the morning of 25 January 2011, just hours before the eruption of the revolution, had praised the government's achievements on growth. "But the revolution erupted due to the poor distribution of the benefits of that growth," he remarked at the time.

In any case, the sacking of Radwan changed nothing. He was dropped in a Cabinet reshuffle in July following protests demanding revision of the budget and the raising of the minimum monthly wage to LE1,200 (about US$200). Nevertheless, Radwan's successor, Hazem Biblawi, pledged from the outset to keep the budget unchanged.

Biblawi, who was deputy prime minister for economic affairs as well as finance minister, also had a clear orientation. He was directly responsible for the government’s decision not to re-nationalize public enterprises that had been sold off corruptly under Mubarak. He insisted that the government contest court rulings that annulled a number of these sales.

Ganzouri's government managed to offer a combination of both indebtedness and austerity.

It is inconceivable that privatization as a policy could be reversed under the rule of the SCAF. Its chairman, Hussein Tantawi, was a member of the ministerial committee for privatization that oversaw many of these same corrupt deals. The man Tantawi brought in as prime minister after sacking Sharaf last November, Kamal Ganzouri, was also responsible for a significant number of dubious transactions when he served as Mubarak’s premier between 1996 and 1999.

Curiously, Ganzouri's government returned to the path of borrowing. But it promised no new expenditure: it thereby managed to offer a combination of both indebtedness and austerity. It announced it was seeking a loan from the International Monetary Fund (IMF), the very organization which first pushed for privatization and a free market economy – under previous borrowing programs – during Mubarak's reign.

Moreover, the Popular Campaign to Drop Egypt’s Debts revealed that Egypt secretly borrowed US$1.2 billion in the past year. The group cited a rise detected by The Economist magazine in Egypt's foreign debt from US$35 to US$36.2 billion. If an agreement is reached on a US$3.2 billion loan from the IMF, this year’s total external borrowing would end up reaching four times the annual average under Mubarak.

This article is an edited translation from the Arabic Edition.

No comments:

Post a Comment