Pragmatist Islamists? Those IMF-Loving* Egyptians

♠ Posted by Emmanuel in , at 8/28/2012 03:36:00 PM
In case you haven't been following the news, IMF Managing Director Christine Lagarde recently visited Egypt, where she was promptly serenaded by a plea from their Muslim Brotherhood-linked President Mohamed "Islam is the Solution" Morsi to increase the prospective bailout amount to $4.8 billion from $3.2 billion. Undoubtedly, Egypt is in dire economic straits with borrowing costs north of 16% for long-term bond issuances and a massive budget shortfall--which even enhanced IMF beggary will fail to plug by most accounts.

That said, there may be an ever-so-slightly improved prospect for a loan coming through (or some hope). Although the previous Freedom and Justice Party (FJP)-dominated legislature made quite frankly unrealistic pleas for conditionality-free loans, its subsequent dismissal and the election of Morsi has supposedly changed matters. Insofar as the caretaker military government of Kamal Ganzouri was treated with understandable contempt by the FJP legislature, his succession by Morsi has, according to some, changed the overall FJP tune on IMF loans. In other words, the twin evils of a military leader and the IMF were probably too much for the Muslim Brotherhood to stomach, but an FJP leader plus the reviled IMF may be something Egypt can digest--at least for a while.

Ahram Online has a fascinating article on the alleged volte-face of the Islamist party on IMF lending in the grandiosely entitled "From hell to heaven: Egypt Islamists change tack on IMF loan" [!--even I cannot make this stuff up]:
On Monday, the former head of the budget and planning committee in the now-dissolved parliament Saad El-Husseini said he completely supports the IMF loan, even if it entails what is considered usury. El-Husseini added that in Sharia law "necessities allow the forbidden," according to a report on Ahram's Arabic-language news-site.

In addition, Adel-Hafez El-Sawi, the FJP's Economic Commission Chairman told Ahram Online on Monday that "we never rejected the idea of borrowing." El-Sawi explained that what the party previously opposed were the economic reforms suggested by Ganzouri's government to attain IMF funding. The plans were not transparent and ignored key issues regarding public debt, wage structures, taxes and governmental spending, he said.
The FJP also issued a statement on Sunday night saying it did not take a "negative" stance towards an International Monetary Fund (IMF) loan to Egypt. "Our decision not to reject borrowing is based on Egypt's supreme economic interest," the statement read. 
More interestingly, Morsi is implied to have bought off the Nour Party for whom an Islamic identity is even stronger than the FJP by virtue of giving its leader a place on his advisory team:
For its part, the [even more Islamist] Nour Party said on Sunday that it had never objected to overseas loans and denied that it had ever claimed an IMF loan was tantamount to usury. Emad Abdel-Ghafour, head of the party and a recently-appointed member of Morsi's presidential team, told Ahram Online that the party will not approve any loan until it knows the conditions. “Economists told us that this loan and its interest rates need not be regarded as usury," he said. Abdel-Ghafour said that any previous statement from a Nour Party member rejecting such loans was not representative of party opinion and was purely a personal view. 
Under sharia law, of course, charging interest is regarded as usury and is thus prohibited. While Islamic borrowers (especially from the IMF) rationalize borrowing somewhere along the lines of "we had no choice" or the excuse of "the IMF lends at concessional rates and therefore it's not usurious," I am actually in agreement with the Nour Party head in believing that forthcoming conditionalities applied by the IMF on Egypt will make or break this deal as they likely would have before.

The prospect of IMF conditionalities may now be more palatable to Islamists because they believe that popular discontent over the implementation of reform measures alike reducing massive energy subsidies is outweighed by the prospect of being thrown out of power by failing to deliver on the economic front. Prospects going forward depend on the ability of the Islamists to tamp down the IMF conditionalities and keep popular discontent at a manageable level, while at the same time managing to normalize the dire economic situation in Egypt. It's a tall order for the Islamists in a high-stakes bid to keep their grip on power, but an advantage Egypt has over many other countries is the geopolitical importance of Egypt. Would the IMF have been so eager and willing to dispatch Lagarde to, say, Yemen?

Remember, though, that Egypt is an IMF repeat customer--hardly something to be proud of. It has gone to the poorhouse four times since the Eighties. Doing so did not solve Egypt's problems conclusively then as evidenced by repeatedly having to visit the Washington-based emergency funder, and most hardly expect it to do so now when Egypt's shortfall is far more than $4.8 billion. Needless to say, it is generally unpopular there, too.

Good luck, Egypt. You're going to need lots of it.