The role of the IMF in Morsi’s downfall

Published on Socialist Unity, by John Wight, July 8, 2013.

(My comment: but first it was the fear about a Muslim dictatorship that put hundred of thousands of Egyptian non-integrists into the streets, even Muslim women. Why is the Muslim Brotherhood not able to see these a bit more secular or leftist thinking part of the population? In democracy, any majority has never the right to transform a democracy into a dictatorship for it’s believes, specially not the rules about privat life of their political opponents. It was the threat for a Muslim integrist dictatorship which made people oppose Morsi and approve the military intervention. Why the Muslims need to deny this? And why intellectuals do not speak and write enough about this part of the events? – Heidi).  

Mohamed Morsi’s presidency in Egypt was brought down by his failure to turn the country’s ailing economy around after a year in office. But turning Egypt’s foreign-aid and foreign-investment dependent economy around in the context of a global economic crisis and on the back of a revolution was never going to be easy. Regardless, for him and the Muslim Brotherhood this failure was the main reason for their undoing, illustrating the extent to which weak economies throughout the Global South continue to exist at the mercy of global institutions such as the IMF.

The Egyptian economy under the Mubarak dictatorship had been heavily reliant on tourism, which as part of a services sector comprising shipping, banking, and trade accounted for around 50 percent of GDP. Agriculture accounted for 14.7 percent and industry 37.4 percent.

Mubarak had implemented aggressive economic reforms to make the country an attractive home for foreign investment throughout the first decade of the 21st century. But along with Egypt’s tourism industry this was contingent on the maintenance of stability and security in the most important and populous Arab country in the region – a region commonly perceived to lack both. The corollary to this, of course, was that Egypt’s stability and security under Mubarak was the product of a decades-long brutal dictatorship under which dissent was mercilessly crushed and torture was commonplace. The role of the western powers and businesses in propping up this dictatorship was key to its ability to survive for so long, another example of the rank hypocrisy of our so-called champions of liberal democracy.

By the time Morsi came to power as the nation’s first ever democratically elected president, Egypt had experienced a drastic fall in both foreign investment and tourism revenues, leading to a 60% drop in foreign exchange reserves, a 3% drop in growth, and a rapid devaluation of the Egyptian pound. All this led to mushrooming food prices, ballooning unemployment and a shortage of fuel and cooking gas.

Economic collapse:

In order to arrest the slide towards complete economic collapse, Morsi needed to obtain loans and investment as a matter of urgency. His first port of call was the IMF, which had been in the process of negotiating a $3.2 billion loan request from the previous regime before it was swept from power. Morsi wanted this loan increased to $4.8 billion. However the IMF predicated the granting of any such loan on spending cuts, specifically cuts to the food and fuel subsidies to the poor, which still account for 3% of Egypt’s GDP. In addition Egypt’s massive state sector – which absorbs a further 40% of GDP – was also in the sights of the IMF, an institution whose neoliberal nostrums have wrought havoc throughout the Global South since the 1970s, eloquently documented by Canadian journalist Naomi Klein in her peerless work -The Shock Doctrine.

Morsi and the Muslim Brotherhood – a president and an organisation identified with the needs of the poor – refused to countenance cuts that would worsen their plight, though no doubt also anticipating an eruption of anger throughout the country if they had. In turn the IMF loan was stalled and Morsi was forced to try elsewhere. Loan requests to Germany and Russia were turned down, which left Egypt’s regional allies as the only remaining source of desperately needed funds.

Qatar and Saudi Arabia loaned around $3 billion each over the year of his presidency, Turkey loaned $1 billion, and Libya $2 billion, while Washington continued its annual subvention to the country of $1.5 billion, much of which goes to the military in an arrangement that Morsi, for tactical reasons of trying to keep the generals mollified, did not interfere with.

But this was not enough to halt the growing crisis. Egypt’s currency had fallen 12% against the dollar since December 2012, making the importation of wheat, fertiliser, fuel and animal feed upon which the country depends more expensive. The result was a spike in food prices and a contraction in consumption of everything except basic foods and necessities in a country in which over 43% live in poverty. Egypt’s central bank had been relying on its foreign currency reserves to plug the gaps in the economy since the Mubarak era, but those had shrunk by 60% since the revolution and this was abandoned. With unemployment officially standing at just over 13% but thought to be closer to 20%, including 82% of young people aged 15-29, Egypt’s economic crisis had turned into a social and political time-bomb.

Military coup: … //

… (full text and comments).

Comments are closed.