- The financial flip-flop of Egypt's revolutionary government,
first requesting and then declining a $3 billion dollar IMF loan, highlights
Egypt's hard choices at this point in the revolution, but is a good sign,
says Eric Walberg
- It is no secret that Egypt has put all its faith in the
US and Western international institutions since the days of Egyptian president
Anwar Sadat, contracting a huge foreign debt, a process that was increasingly
corrupt, despite being careful watched over by those very agencies. This
debt is financed by foreign banks, and must be repaid in dollars -- with
interest. If much of the money they create and then "lend" is
siphoned off into Swiss bank accounts, that is Egypt's problem. No one
is trying to charge the people who gave Mubarak or his henchmen their money
and then let them re-deposit it with them, but it takes two to tango.
- Whether or not a fraction of it actually helps the Ahmeds
in the meantime, it is the Egyptian people who are held responsible for
it all and must comply with IMF "adjustment programmes", involving
privatisation, deregulation, regressive taxation, an end to subsidies to
the poor, and much more unpleasant "tough love".
- Egypt's revolution momentarily shattered the complacency
of this devilish scenario. The explosion under the weight of the grinding
poverty the system produced caught the Western bankers and political leaders
by surprise and they hurried to embrace the revolution and co-opt it when
they realised it was inevitable. This culminated in the IMF's offer of
the loan to cover the yawning gap in Egypt's first post-revolution budget,
which will double the lowest salaries, improve social services and introduce
a progressive income tax.
- This unusual gesture of generosity by the IMF (a low
interest rate and supposedly no strings attached) was really intended to
keep Egypt from straying from the orthodox monetary fold, as other countries
have done in the past in similar situations. It was enthusiastically supported
by Egypt's elite, largely trained at US universities in the arcana of monetary
theory. "Otherwise, Egypt was about to be considered in default,"
Hani Genena, senior economist at Pharos Holding for Investments told
Al-Ahram Weekly. This is precisely what countries such as Russia, Argentina
and Ecuador have done in the past.
- The Higher Council of the Armed Forces, Egypt's de
facto ruler, was not impressed with assurances that the loans were
"without conditions", and General Sameh Sadeq told the government
to cancel the loan, with its "five conditions that totally went against
the principles of national sovereignty" which would "burden future
generations". Finance Minister Samir Radwan complied and hastily negotiated
funds from Qatar and Saudi Arabia (countries with their own agendas for
Egypt's revolution) to plug the remaining hole. The spurned lover, the
IMF, and its sidekick the World Bank, were not pleased. The latter said
it would have to "review" its financial plans for Egypt.
- As news of the loan tiff was breaking, US Senators John
McCain, Joe Lieberman and John Kerry visited Cairo to offer their gift
to the revolution: a bill in Congress to create "economic assistance
funds" for Egypt and Tunisia. Recall McCain's presidential campaign
slogan to "Bomb, bomb, bomb Iran!", and his and Lieberman's militant
support of Israel. If anything, their visit merely confirmed to Egypt's
military leaders the need to keep the IMF and its henchmen at bay.
- Another visitor to Cairo last week was Mahatir Mohamed,
who turned Malaysia into an economic powerhouse after extricating it from
its colonial past. When his "tiger" economy was subverted by
speculators in 1997, he stopped the run on the Malaysian currency and stabilised
the economy without going to the IMF cap in hand, and Malaysia survived
the crisis much better than the other "Asian tigers" who bowed
to IMF pressure. "Malaysians refused the IMF and World Bank's assistance
because we wanted our economic decisions to be independent," he told
reports in Cairo this week proudly -- music to Field Marshall Mohamed Tantawi's
- In fact, many observers are convinced the army's decision
was in response to the same popular anger and national pride that allowed
Mahatir to successfully defy the bankers in his day. "I felt a surge
of pride when I heard the loan was rejected," University of Cairo
employee Mohamed Shaban told the Weekly. Egyptians intuitively understand
Mayer Rothschild's principle: "Give me control of a nation's currency
and I care not who makes her laws." Egypt's military leaders understand
- The process of petitioning the grudging financial centres
of Zurich and London to recover at best a tiny fraction of the stolen billions
that were stashed abroad and thus are responsible for an outsize part of
Egypt's foreign debt will take decades and yield precious little besides
huge legal costs, as the experience of the Philippines and Indonesia shows.
- Egypt indeed could consider defaulting on what is called
in financial jargon an "odious debt", referring to the national
debt incurred by a regime for purposes that do not serve the best interests
of the nation. The US did this to tear up Iraq's debt in 2003. Ecuador
did it in 2009. The latter (unlike the US in Iraq) even in
compliance with international law. Greek citizens have already formed an
Audit Committee to establish which parts of the national debt are "odious"
or otherwise illegitimate.
- But such a radical step would bring the collective wrath
of the powerful world financial elite down on Egypt and is not an easy
option. There is no longer a Soviet Union to turn to, as there was in the
time of Nasser, when he dared defy the empire.
- But neither is there any need to leave Egypt's budgetary
financing up to an elite of world bankers. Once a government realises that
money is just a convention, something that it can use responsibly to grease
the wheels of the economy, to generate employment and incomes, using the
nation's wealth for the people, it can responsibly create what money it
needs, keeping a careful eye on what will increase production and wealth
without putting too much pressure on prices. Taxation returns this money
that the government in effect "loaned" to itself interest-free.
- Michael Hudson, president of the Institute for the Study
of Long Term Economic Trends and adviser to the Russian, Japanese and Icelandic
governments, told the Weekly Egypt has a "much broader choice"
than Western governments in pursuing an independent financial and economic
reform, as it still has nationally-owned commercial banks. It could set
up a Recovery Fund for the Revolution without any need to borrow from anyone,
using Egypt's millions of unemployed -- a force that can move mountains
-- as collateral, to create jobs which will automatically repay the money
the government creates in new income and more tax revenue.
- The plan to bring Toshka back to life by redistributing
land to peasants and providing them with start-up capital is a perfect
example of what must be done. There is no reason to "borrow"
this money, especially from other countries, and worse yet to pay them
interest. After all, investment in the country's future is a risk that
should be equally share by both the giver and taker of loans, in compliance
with sharia law.
- Hudson's associates at the Center for Full Employment
and Price Stability, the Levy Economics Institute, and the Center for Full
Employment and Equity are now preparing a report for the Asian Development
Bank on alternative monetary and fiscal policies to promote full employment
and price stability without relying on IMF/WB funding.
- Eric Walberg writes for Al-Ahram Weekly http://weekly.ahram.org.eg/
You can reach him at http://ericwalberg.com/ His Postmodern Imperialism:
Geopolitics and the Great Games is available at http://claritypress.com/Walberg.html