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 a democratic 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 . 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.

 

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  • The following is a comment I made on an article appeared in “REBEL ECONOMY” http://rebeleconomy.com/2013/01/06/the-imf-misunderstanding-in-egypt/comment-page-1/#comment-1160

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    My friend Raja Khalidi has drawn my attention to your article, if you allow me I would like to make a couple of comments:

    It is easy to say that one likes the IMF proposed facility to Egypt or dislikes it. But what is difficult is why the like or the dislike, especially if it has to do with societies and real humans and peoples? To answer the why one cannot neglect the implementation and result of the IMF supported economic programmes in Egypt and other developing country since the late 70s and 80s. The formulation of these programmes is founded on the conceptual framework of the so called “Washington consensus” (IMF, World Bank and US Treasury), which is based on the premise that markets are the best solution for every thing and the produce the best allocation for the scarce resources among rich and poor within countries and in between countries. And therefore government intervention is a no no and therefore its role should be kept to the bare minimum and public enterprises (even those with essential and high social return) should be privatized and should be run by the private sector, even under monopoly (or near monopoly) and corruption conditions as it is the case in almost all developing countries. The result of the economic programs supported by the IMF in the last 30-40 years produced the result which led to the polarization between the rich and poor at the national and international levels and the concentration of wealth with the rich. The result of these programs is the social discontent and the Arab spring/revolutions. On top of that the IMF and the World Bank did not change its approach and conceptual framework. All what has been changed is the addition of the social dimension to the proposed programs, and these as a friend of mine says are not to reduce poverty but to make poverty looks acceptable and to make the poor better able to adopt to poverty, but not poverty eradication or even reduction.

    Yes the financial cost of the proposed IMF is little compare to domestic financing, but the real cost is that of pursuing the same policy approach which Egypt implemented in the last 40 years and led to the social discontent and 25 January revolution. The IMF programs always (and this proposed one is not an exception) focus on cutting the expenditure which could further shock an already debilitated economy, while at the same time does not put any emphasis on raising the public revenue, because of the fear that the government role will be expanded. While in the case of Egypt and because of the corruption of the previous regime (which continues to exist) the problem is the erosion of the public revenue side. If you stop this erosion the revenue will increase and the deficit will decline and there is not need for IMF facility!

    Yes the IMF is and will be easy with Egypt this time, not only that the IMF is eager to give Egypt the facility not because they are in love with Egypt and not because the USA wants Egypt to have a strong economy (on the contrary they want Egypt to have a dependent economy), but because they want to hook Egypt and keep the country pursuing the same kind policy of the last 40 years and therefore don’t give Egypt a chance to think about a real alternative economic-social development policy.

    But at the end, economic policies follow and serve political choices, and the conceptual foundation of the Washington consensus is not for the poor individuals and countries but for the rich. If you read Arabic I wrote a number of Articles in AlShorouk Daily, where I explained alternative ways to finance the deficit. The following are the links to these articles:

    http://www.shorouknews.com/columns/view.aspx?cdate=20112012&id=adcaf7af-2108-4635-86e6-cba1f56236c4
    http://www.shorouknews.com/columns/view.aspx?cdate=02012013&id=9e05bc55-ddda-458d-9a83-942fd77bc9bc
    http://www.shorouknews.com/columns/view.aspx?cdate=29022012&id=8034c7e8-929d-4b39-b587-b04b2b95e891
    http://www.shorouknews.com/columns/view.aspx?cdate=13122012&id=b0a9b644-1f1b-474c-bd34-659f931df274

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