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Egypt's political mess holds back aid, economic growth

Without a government & a criticized ruling military council, it will be very hard to secure investments and assistance.
29.11.11 | Source: Kipp Report

Egypt needs cash, quickly. But the country stands without a recognisable government, in the hands of a ruling military council criticised by the international community for a bloody crackdown against pro-democracy protesters. In these conditions, it may find it very hard to secure international assistance.

Since the start of the year Egypt’s domestic borrowing costs have soared and its foreign reserves have plunged 40 percent. As the government has thrown money at supporting the currency, the country is left with liquid funds equivalent to just three months worth of imports.

With hindsight, it seems obvious that the army should have accepted the $3.2 billion 12-month facility offered by the International Monetary Fund in June. Back then, Egypt was seen as a debutante of the Arab uprisings, the population was optimistic about the transition to democracy and the interim government was expected to remain in power for at least four months.

MORE WORRYING THAN THE JANUARY UPRISING:
But the uncertainty in Egypt today is, in some ways, more worrying than during the January uprising. It isn’t clear that the army is willing to give up power and has already resorted to using excessive force to protect its position. What’s more, two finance ministers and an entire cabinet have resigned in less than one year. That is hardly a stable environment in which the IMF might lend. How could the lender be sure the money was used properly?

It is unclear whether the generals want a deal with the IMF or whether the IMF could contemplate a deal with the generals. Moreover, the doubts may not lift even if a national unity government wins power in the coming days. It may only be in place for a matter of weeks before parliamentary elections are completed. And there is no guarantee an IMF deal would secure support of the Egypt’s eventual rulers.

Clarity and stability of a sort that would satisfy the IMF may also unlock billions more cash provisionally pledged by the World Bank and the Group of Eight nations. Gulf countries have also provided some funds. But with the army in charge, it is hard to see how Egypt can claim the financial assistance it so desperately needs.

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