Tuesday, April 3, 2012

Egypt's Looming Economic Shock Doctrine



by Sharif Abdel Kouddous

The Nation

"Egypt is teetering on the edge of an economic crisis. Cast adrift in a deepening political quagmire over the past fourteen months, the economy has now reached a critical juncture, as the country faces the pressing challenge of financing a large budget deficit as rapidly dwindling foreign currency reserves threaten to crack apart an already fragile situation.

Yet, more than a year after the launch of a revolution driven in large part by economic grievances, the budgetary and fiscal proposals being considered to secure external financial assistance are geared more towards furthering Mubarak-era policies than to promoting social justice.....

In January, the military-appointed interim government formally requested a $3.2 billion loan from the International Monetary Fund (IMF). The government says it needs $11 billion to avoid a balance of payments crisis and signing a deal with the IMF is expected to open the door to aid packages from the United States, the European Union and the Gulf. The IMF requested the Egyptian government draw up an economic reform plan supported by political consensus in order to secure the loan.....

The Ministry of Finance, the Ministry of International Cooperation and the Central Bank drafted a reform program to present to the IMF, the details of which were not released publicly—although a copy was leaked to the media. While the plan’s proposed policies are extremely vague—with few specifics and little in the way of proposed timetables—the document includes the classic phrase associated with IMF loans across the developing world: "structural adjustment," and with it, a slew of controversial economic amendments.

Aimed at slashing the budget deficit, the document proposes tax reforms to increase government revenues. While lacking any concrete details, it mentions amending income taxes by broadening the pool of tax paying citizens—echoing the polices of Mubarak's finance minister, Youssef Boutros-Ghali—with no proposals for a move towards progressive taxation.

Reforms to sales tax laws and the possibly of instituting a Value Added Tax are also mentioned. Sales taxes, while easier to implement from an administrative standpoint, are indirect and regressive by nature, targeting different sectors of society with the same taxes when they purchase goods, regardless of income level. In Egypt, where half the population lives below the poverty line and spends the biggest proportion of their income on basic goods, sales taxes place a higher burden on the poor majority......

"In a word, the government reform plan is lousy," says Samer Atallah, assistant professor of economics at the American University in Cairo. "It's basically neoliberal economic policy that doesn't seem to get the new reality of Egypt."......

By most accounts, the Egyptian economy will need of some kind of financial aid within the next few months to avoid a severe downturn. It remains unclear when or if an IMF loan will be signed or what economic reforms will be agreed upon by the Muslim Brotherhood. What is becoming clear is that signs point to a continuation and deepening of many of the same policies that stirred up last year's revolt."

No comments: