The IMF’s ‘social justice’ ruse in Cairo

Patrick Bond, Guest Blogger

After the International Monetary Fund’s long support for tyranny, dictatorship and rampant corruption in Egypt, the last few weeks have witnessed the incongruous appearance of the two words, ‘social justice’, in official statements. The June 4 loan of $3 billion adds to an existing $33 billion in foreign debt inherited from Hosni Mubarak’s regime, which a genuinely new, free democracy would  have grounds to default on because of its ‘odious’ nature in legal and technical terms.

To legitimize that debt requires new loans that have an aura of relevance. As Ratna Sahay, IMF mission head in Egypt, said on June 2, “We share the draft budget’s overarching goal aimed at promoting social justice. The measures go in the right direction of supporting economic recovery, generating jobs and assisting low income households, while maintaining macroeconomic stability.”

Three days later, acting Managing Director John Lipsky claimed, “We are optimistic that the program’s objectives of promoting social justice, fostering recovery, and maintaining macroeconomic stability and generating jobs will bring positive results for the Egyptian people.”

The same day, Sahay repeated, “Following a revolution and during a challenging period of political transition, the Egyptian authorities have put in place a home-grown economic program with the overarching objective of promoting social justice.”

Egyptians may disagree, because the following week, the new government of Essam Sharaf began implementing a controversial law banning strikes. Minister of Finance Samir Radwaan promised a continuation of neoliberal policies and on June 9 canceled a proposed capital gains tax after pressure from the stock market.

Details have not been released about conditionality, but the IMF claims there will be more progressive taxation and “additional spending for job creation and protection of the poor, while limiting the widening of the deficit” following the recent huge increase in spending “as a result of the protests.”

But in future, a squeeze on poor and working people can be anticipated via “a Value Added Tax (VAT)-like consumption tax and reform of the highly inequitable and costly system of subsidies” so as to reduce the deficit. As the IMF confessed, “immediate implementation of such reforms was not feasible” because of the state’s failure so far “to protect the low income households.”

The World Bank has another $4.5 billion in Egyptian loans lined up “to finance reforms that strengthen its credit and investment prospects.”

To get a sense of the longer-term agenda, it is worth recalling the last major overview of the Egyptian economy, in the April 2010 Article IV Consultation. The IMF complained about the postponement of “key fiscal reforms – introducing the property tax, broadening the VAT, and phasing out energy subsidies.”

But there was a generally upbeat endorsement of Mubarak’s regime: “Five years of reforms and prudent macroeconomic policies created the space needed to respond to the global financial crisis, and the supportive fiscal and monetary policies of the past year have been in line with staff’s advice. The authorities remain committed to resuming fiscal consolidation broadly in keeping with past advice to address fiscal vulnerabilities.”

In addition to expanding Public Private Partnerships (PPPs, a euphemism for services privatization and outsourcing), the IMF named its priorities: “adopting as early as possible a full-fledged VAT, complementing energy subsidy reform with better-targeted transfers to the most needy, and containing the fiscal cost of the pension and health reforms.”

The IMF noted just once that “Transparency International cites accountability and transparency, and weaknesses in the legal/regulatory system as key reasons for Egypt remaining 111th of 180 countries on its Corruption Perception Index.” Even so, it recommended “resuming privatization.” The word governance does not appear in the document.

After Mubarak was overthrown, IMF staff wrote to the G8 that “managing popular expectations and providing some short-term relief measures will be essential to maintain social cohesion in the short term.” Halting the revolution through buying off the political pressure was essential.

As Adam Hanieh from London’s School of Oriental and African Studies concluded just after the G8 summit and allied Arab states pledged $15 billion to Egypt, “The plethora of aid and investment initiatives advanced by the leading powers in recent days represents a conscious attempt to consolidate and reinforce the power of Egypt’s dominant class in the face of the ongoing popular mobilizations.”

As he warns, “At the core of this financial intervention in Egypt is an attempt to accelerate the neoliberal program that was pursued by the Mubarak regime.”

Hanieh projects that if Washington wins, the result will be “a society that at a superficial level takes some limited appearances of the form of liberal democracy but, in actuality, remains a highly authoritarian neoliberal state dominated by an alliance of the military and business elites.”

Patrick Bond directs the University of KwaZulu-Natal Centre for Civil Society in Durban.

4 Responses to “The IMF’s ‘social justice’ ruse in Cairo”

  1. At the core the IMF still believes in the need for fiscal adjustment. The ‘new thinking’ turns out to be the same old stuff. And Lagarde should not make a difference.

  2. daniel says:

    @ Patrick Bond

    I couldn’t disagree more.
    If international assistance, this includes financial assistance, would not be forthcoming at this moment, what would be the alternative? There would be a significant probabibility of financial stress, meaning the government may be unable to pay bills, the banking system may destabilize with severe consequences for people’s savings and the credit supply to the economy. Given the challenges ahead for Egypt to become a more democratic, open and transparent society, I do not think we want to have a financial crisis on top of that. And I strongly doubt that this would enhance the welfare of the people.

    And generally, is it really the task of the IMF to assess democratic principles in its member states? Or should the Fund analyse macroeconomic policies and financial stability in its member countries? I find it quite hard to imagine an IMF that would writereports about Italy saying “we have doubts whether there should be a president who owns major media companies” or China “we still have major reservations about some human rights issues”. That is just not the Funds task, and quite frankly, far beyond the Funds legitimacy!

  3. Elle says:

    Patrick — I see you are from Durbin. How related are the IMF impeding loan activities in Egypt to what happened in South Africa after its transition from apartheid I wonder?


  4. Patrick Bond says:

    Hi Elle, you may like Naomi Klein’s description of the similarities in her SA chapter of Shock Doctrine, which she posted recently with an intro comment to beware our example: … and yes, I’ve done a couple of books which tell tales of external conditionality, including the IMF’s Dec 1993 loan which handcuffed Mandela when he took ‘power’ six months later: and

    Daniel, we’ll agree to disagree on 1-3 (e.g. check the CEPR study in Oct 2009 which found African countries had 17 contractionary and only 5 expansionary orders during the meltdown – – and on Iceland see if the Reykjavik 9 make sense in their attack on the IMF, p.4., and the austerity adopted by their ‘leaders’: But I’m with you on your fourth point.