Egyptian groups reject $4.8 billion IMF loan

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Associated Press

Posted on November 12, 2012 at 12:03 PM

Updated Monday, Nov 12 at 1:34 PM

CAIRO (AP) — Seventeen Cairo-based groups sent a letter Monday to the head of the International Monetary Fund and Egypt's prime minister opposing a proposed $4.8 billion loan, as technical experts were in Cairo to discuss the details.

The groups complained that the negotiations over the agreement lack transparency, taking place in the absence of an elected parliament and giving the new president legislative authority without oversight — and emerging economic steps target the poor, not the rich.

The groups opposed to the loan include two Islamist-leaning parties, a number of well-known local civil society groups and the April 6th Movement, credited with playing a key role in Egypt's uprising last year,

Egypt has applied for the loan to counter budget shortfalls after longtime ruler Hosni Mubarak's ouster last year and an economic downturn that followed. The country's reserves are dangerously low, at just under $15.5 billion. Gulf countries have helped cushion the reserve, with Qatar depositing hundreds of millions of dollars from a promised $2 billion dollar aid package.

The government has yet to make public its economic reform plan and has not disclosed the conditions or terms of the IMF agreement. Officials have released statements about some planned measures, saying that the government plans to cut subsidies on high grade fuel and indirect taxation by raising the sales tax to 11 percent from its current rate of 10 percent.

"With little transparency and no clear economic program, the potential loan agreement continues to lack the 'critical mass' of support that the IMF requires as a necessary condition for financial assistance. For that reason, we believe that negotiations for the proposed loan should be frozen," the groups' statement said.

Rights groups warn that what has been leaked to the media shows that the program under consideration is regressive and could negatively impact vulnerable segments of Egyptian society, while the existing economic system and structure of subsidies continue to benefit the rich.

Reducing subsidies is an explosive issue in a country where more than 40 percent of the country's 83 million live on less than $2 dollars a day, according to World Bank figures.

The London-based consultancy Capital Economics said Monday that subsidy cuts are likely to push Egypt's inflation levels higher over the coming months. It said that October inflation data suggest that "the recent period of relatively low inflation may be coming to an end."

Core inflation, which excludes regulated items and fruit and vegetables, rose to 4.6 percent last month from 3.8 percent on an annual basis in September.

Subsidy cuts and tax increases linked to the IMF agreement could push inflation to 8 percent next year, the group said.

The IMF team that has been in Egypt since the end of last month for talks about the program is scheduled to leave this week.

"Everyone agrees that the existing structure of subsidies is very unfair and benefits people who don't need them, but the potential inflationary effects need to be examined," said Ahmed Shokr of the Popular Campaign to Drop Egypt's Debt, one of those who signed the letter.

Government officials say the deficit for the last fiscal year that ended in the summer reached nearly 11 percent of the GDP, at $22 billion. According to the Finance Ministry, the deficit for the first three months of the current fiscal year is already nearly 23 percent higher than the shortfall at same time last year.

Shokr, who was among around 300 protesters who marched Monday from the Egyptian Stock Exchange to Cabinet headquarters to press their demands, said another problem is that the government is too focused on reducing the deficit instead of shifting spending toward real economic growth.

"Reducing the deficit should not be the main goal ... It has to be focused on promoting employment, on giving people opportunities to work in dignified jobs and on improving services," he said.

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