Wednesday, January 9, 2013

Neo-liberal Islamism & the Effects of Egypt’s IMF Loan



For anyone familiar with Naomi Klein’s Shock Doctrine, the economic situation currently facing Egypt bears a striking resemblance to “disaster capitalism.”  According to this doctrine, during times of crisis, concerns about stability typically accompany measures that include currency devaluation, tax hikes, increasing privatization, and the freezing of assets, all of which are on display in Egypt.
As blogger Sandmonkey points out, it is hard not to be exhausted by the pace of events in Egypt these days; then again—with the principles of “disaster capitalism” at work, perhaps that is the point.
Here, we call for a skeptical assessment of the Egyptian economy—particularly in terms of the potential ramifications of the country’s looming IMF loan—through an analysis of media coverage, the institution itself, and previous “disaster capitalism” policies championed by the IMF.
Media Coverage on the Egyptian Revolution
Although overshadowed by uproar against the government’s vague and worrisome constitutional referendum—which was plagued by allegations of voter fraud and low voter turnout—Egypt’s January 25th revolution appears to be transforming into a “hunger revolution.”
Striking as well is the marked shift in tone of Western media coverage on revolutionary and post-revolutionary Egypt. As the 2011 Arab uprisings spread across North Africa and the Middle East, the West worried loudly about the threat of an Islamist takeover—a view espoused by right-wing think tanks as well as the mainstream press.
As Tunisia and Egypt began the process of organizing post-revolutionary elections, multiple voices warned of ademocratic takeover by parties aligned with the Muslim Brotherhood.
Yet, in recent months, a strange about-face has occurred in media coverage on the Brotherhood, and, in particular, on President Mohamed Morsi. In the wake of the November 2012 Gaza Strip ceasefire between Israel and Hamas (ostensibly negotiated by Morsi-as-lynchpin), media coverage from the United States, in particular, has shifted in tone. For American media outlets, domestic problems facing Egypt have been overshadowed by the President’s role as “a pivotal player in Mideast Peace.”
The interests of neo-liberalism lurk behind this enormous shift in rhetoric. Even as the State Department has spoken of its “concerns” with the new constitution, Washington’s language on Egypt has been telling, focused on the twin goals of “stability” and “economic reform.”
Egypt’s pending IMF loan is at the heart of this shift in coverage. Although in the past scholars have critiqued the IMF’s structural impact on “developing” nations, the organization’s notorious lack of transparency—particularly about conditions attached to receiving IMF funds—render oblique criticism difficult.
Analyzing the IMF is further complicated by prevailing views about the institution as a semi-neutral party combined with little appreciation of its role in broader, globalized neo-liberal market economies designed for disproportionate profit.
These factors should by no means, however, prevent us from taking a skeptical look at the current IMF loan and past IMF policies in the context of political developments in contemporary Egypt
The IMF and Its Recent Loan to Egypt
In November 2012, negotiations between Egypt and the IMF concluded, resulting in an agreement for a $4.8 billion loan. Although very little information about the loan was released, some comments about certain aspects of the deal were made.
At the time, it was estimated that, under the loan, Egypt would receive $14.5 billion in foreign investment, that cuts would be made to fuel subsidies, and that tax reforms would be implemented to raise revenue.
On December 8, 2012, Morsi announced increases in the sales tax as well as taxes on specific consumer goods. He also amended the country’s personal income and property tax laws.
Interestingly, Egypt’s Minister of Finance, Mumtaz al-Said, later claimed the tax hikes were unrelated to the IMF loan, despite comments to the contrary from the IMF. Eight hours after announcing the tax hikes, Morsi postponed their implementation—a move likely linked to the then-upcoming constitutional referendum.
As reflected in the Egyptian deal, an increase in foreign investment is typically one of the major structural effects of an IMF loan. The IMF and the World Bank are organizations intrinsically linked to the Washington Consensus, a set of economic policies that constitute the standard reform package promoted by the two organizations and Western countries since the late 1980s.
The IMF’s voting system is further proof of its links to the Washington Consensus. Each IMF member country is given a quota based on its size in the global economy. The more economically powerful a country the more likely it is to receive a large quota.  The quota system determines how much money each country is permitted to provide the IMF, and thus indirectly translates into a certain stake in the organization for member countries.
At the time of this writing, the five countries with the largest IMF quotas are: the United States, the United Kingdom, Japan, Canada and Germany. This should raise important questions about power, geopolitics, and the global financial system, as well as concerns about the ideology and alignment of the IMF as an institution.
IMF loans are attached to a specific set of conditions, which typically include the devaluation of local currency, trade liberalization, the removal of price controls and subsidies, a fight against corruption, the implementation of austerity measures, and a focus on resource extraction for direct export. The overarching aims of IMF programs include imposing macroeconomic stability and re-orienting debtor countries toward neo-liberal market economies by focusing on trade, production, and foreign investment.
The reduction of trade barriers is also a key element of most IMF Structural Adjustment Programs. These mechanisms open the target economy up to the global market. This may seem good in theory but in practice tends to have disastrous effects on the poor and middle classes.
The IMF’s Historical Role in Egypt
The combined effect of privatization and reductions in trade barriers concentrates wealth among a small elite as well as foreign corporations that invest through its members. One of the primary causes for the increasing inequality and growing poverty in Egypt was the development of this elite group in the 1990s
During that decade, the Egyptian economy underwent a structural adjustment process in response to increasing economic problems following President Anwar Sadat’s infitah (or “opening,” a policy of economic liberalization). The goals of the country’s structural adjustment programs (ERSAP) included the following: transferring public companies to private control, reducing corruption, encouraging investment by altering prices to benefit trade, trade liberalization, and improving the country’s capital/money markets.
Overall, ERSAP aimed to reduce the role of the Egyptian government, to facilitate the extraction of resources for trade, to encourage investment by foreign corporations, and to integrate Egypt into the world capital system. Once implemented, ERSAP resulted in a myriad of social and economic problems, most notably a reduction in income for most Egyptians and an increase in unemployment rates.
The Impact on the Current IMF Loan on Egypt
The IMF has been rightfully critiqued on numerous fronts. The institution weakens national sovereignty, and encourages privatization by concentrating wealth in the hands of foreign corporations and a small local elite. It also leads to major cuts in social subsidies and social services due to austerity demands.
As history demonstrates, implementation of the 2012 IMF loan will likely exacerbate socio-economic divisions in Egyptian society: it will encourage even more privatization, thus further enriching the wealthy local elite; it will likely lead to the cancellation of key subsidies and an increase in taxes; and it will most probably make a minimum or maximum wage cap impossible in the near future. As such, because of the IMF loan, the revolutionary demand for social justice is unlikely to materialize any time soon.
Conclusion
For the time being, because of instability inside Egypt, the IMF loan has been put on hold. This situation is, however, likely to end soon. It is expected that in January 2013, Morsi will implement the planned tax hikes, and remove some of the fuel subsidies. This will likely lead to severe social unrest, and possibly even spark the “hunger revolution” many in Egypt are expecting.
This state of affairs explains why Morsi and the Muslim Brotherhood pushed the constitution through so quickly. Had they waited until February 2013, as originally planned, social unrest from tax increases and fuel subsidy cuts would have greatly affected the Brotherhood’s ability to win the referendum.
The crisis surrounding the constitutional referendum, including Morsi’s now-rescinded seizure of extrajudicial power, not only distracted attention away from the economic collapse facing Egypt, but also typifies “disaster capitalism.” While the attention of Egyptians, audiences worldwide, and the media was focused on the political—specifically the referendum—Morsi announced a series of economic policies, such as reforms to the tax laws, which are likely to have devastating effects later on.
On a more positive note, this current state of affairs also provides an opportunity for activists to begin mobilizing against the Brotherhood’s neoliberalism, especially following the social unrest that will likely erupt once the IMF’s policies are put in place. The Muslim Brotherhood will not be able to realize any kind of lasting social justice in Egypt. The signing of the IMF deal means that Egypt will continue on the path set by Sadat and his free market policies. The rich will get richer, foreign investment will flourish and enrich foreign corporations and investors, and the majority of Egyptians will continue to suffer in worsening economic, social, and political circumstances.
*Sara Salem and Amanda Rogers are staff writers at Muftah. Follow them on Twitter at @saramsalem and@MsEntropy

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