(MENAFN - Arab News) An International Monetary Fund (IMF) loan critical to propping up Egypt's teetering economy is being jeopardized by domestic political infighting that threatens to delay or even scuttle the program, economists say.
An IMF delegation left Cairo late on Tuesday after 17 days of talks apparently without reaching any agreement on the conditions for the 3.2 billion package. In a statement issued on its departure, the Washington-based financial institution said that Cairo needed to "mobilize the required political support for this program" before its board could approve the aid.
"Broad-based support for a national economic program is essential to bolster confidence and ensure its successful implementation in the period following the current political transition," the IMF said, although it termed discussions with Egyptian officials and lawmakers "productive."
Egypt is in critical need of the cash infusion. The economy is sputtering and foreign currency reserves are falling fast as tourism receipts and investment from overseas have plunged since President Hosni Mubarak was ousted from office more than a year ago. Egyptian reserves fell by 600 million in March to 15.12 billion, equivalent to less than the three months' worth of imports widely seen as the minimum. On the eve of the revolution reserves stood at 36 billion.
But negotiations with the IMF are taking place at an unusually sensitive time.
Politics are in high gear as Egyptians go to the polls to elect a president next month in a campaign season shadowed by even bigger political dilemmas. A new constitution has yet to be written so that the division of powers between the president and Parliament remains up grabs. Meanwhile, the emergent political establishment of Islamists and liberals is fighting with the interim military government over the timing and terms of the transition to civilian rule.
"It's an ongoing saga. The problem is that the IMF money comes with conditions attached and countries don't want to be dictated to," Daniel Brody, chief investment officer at London-based Silk Investment, told The Media Line.
Two days before the IMF delegation departed, Khairat Al-Shater, the candidate for the Muslim Brotherhood's Freedom and Justice Party, threw a wrench into the talks by asserting that it was irresponsible for Egypt's interim government to negotiate terms and leave its successor with the responsibility of repaying the loan.
"We told them (the government), 'You have two choices. Either postpone this issue of borrowing and come up with any other way of dealing with it without our approval, or speed up the formation of a government,'" he told the Reuters news agency in an interview.
In remarks that could be interpreted as a negotiating tactic aimed at pressing the interim government to hand over power more quickly, Al-Shater said that he might approve a plan whereby only a small amount of the aid package is disbursed before the new government takes power.
Inside the interim government, there has also been considerable policy confusion. The government has been saying it wants to tie up a deal with the IMF this month, but last week Planning Minister Faiza Abu Al-Naga said she expected the two sides to sign nothing more than a memorandum of understanding within a few weeks and only seal a final agreement by June.
The IMF itself said last week that there is no timeline to conclude the loan talks.
The waffling at the top may have to do with broad opposition among ordinary Egyptians from accepting aid of any kind, including from the IMF, according to a series of Gallup polls. Back in August, Egyptians supported IMF assistance by a margin of 57 percent to 32 percent, but by February, when the most recent survey was taken, the public had reversed opinion. Now, 57 percent oppose accepting IMF money versus 36 percent in favor.
"It's due to a broad misconception in Egypt, which is that Egypt has a lot of misappropriated money in offshore bank accounts from the Mubarak days, so therefore we don't need other people's money," said Silk Invest's Broby. "The Brotherhood is using this as a political weapon." The reports of ill-gotten gains are so rife that in March, Assem Al-Gohary, the head of Egypt's Illicit Gains Authority, called on the media to refrain from published unverified stories, citing a series of forged documents and unproven reports. The most widespread rumor is that the Mubarak's family stashed away as much as 70 billion in foreign bank accounts during the three decades he was in power.
But Egypt ultimately may have little choice than to accept the IMF's offer because the country's foreign reserves position is more dire than the headline number suggests, according to a report by the London-based consulting firm Capital Economics.
Using figures from February, the latest available, liquid reserves, such as convertible securities, currency and deposits, were less than 9 billion, or just two months of import cover, its Middle East economist, Said Hirsh, said in a comment. About 4 billion of the 15.2 billion total is gold bullion that the government would be reluctant to draw down.
The government itself is gradually reaching the limits of what it can borrow domestically to cover a yawning fiscal deficit. It has relied on loans from domestic banks to cover the gap, but economists say the banks are reaching the limits of their ability to lend. A fiscal crisis may well up as early as next month if the first of the IMF disbursements has not come through, economists warn.
With Egypt heading toward a financial crisis and the IMF loan's fate still unresolved, a market rally that began at the start of the year has fizzled out in the past month over concerns about the economy and Egypt's chronic political turmoil.
This week alone shares on the Egyptian Exchange were shaken by Al-Shater's IMF remarks on Sunday and two days later by a court's decision suspending the constitutional assembly. On Tuesday, the Egyptian Exchange's benchmark EGX 30 index marked its sixth straight day of declines to finish at its lowest since Feb. 6.
The Media Line
