Egypt Embraces Oil Monarchs, Dubiously

With the nation's economy in tatters from the uprising that ousted its dictator of 30 years, Egypt's transitional government has turned its back on the Western lending institutions that once propped the Mubarak regime. But its decision to accept the massive aid packages dangled by the oil-rich Arab Gulf states has raised suspicions about their intentions, as well as its own.

In May, Egyptian officials estimated that the populous Arab country would need between 10 billion and 12 billion dollars in international aid to plug a budget gap following the uprising that toppled former president Hosni Mubarak in February. They said the political turmoil resulted in enormous losses to Egypt's tourism sector, capital markets and economic production.

In a surprise move, Egypt's military-run government declared last month that it would not tap the 3 billion dollars loan facility it had secured with the International Monetary Fund (IMF), nor a contingent World Bank offer of 4.5 billion dollars in assistance. Instead it said it would slash government spending and turn to the Arab Gulf monarchies for the rest.

"Borrowing from our wealthy Arab neighbours makes economic sense," says Alia El-Mahdi, dean of the Faculty of Economics and Political Sciences at Cairo University. "But these are countries that were strongly opposed to Egypt's revolution, so we must treat their (display of benevolence) with suspicion."

Egyptian officials attributed their decision to refuse the IMF and World Bank offers to unacceptable lending conditions and concern over the country's debt level. Central bank figures reveal domestic and foreign debts in excess of 190 billion dollars, or about 90 percent of GDP.

"There is a high level of discomfort with the idea of borrowing from outside," explains Amr Hassanein, chairman of MERIS, a regional affiliate of Moody’s credit ratings agency. "At one point, (before the first Gulf War), Egypt was riddled with debt and wasn't able to handle it so it had to pay a high political price."