Tag: IMF

Egypt Takes $5.2 Billion IMF Loan to Support Economy

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The International Monetary Fund in Washington DC has approved Cairo’s request for a $5.2 billion one-year loan. The loan that will have to be repaid within a year adds to a separate $2.77 billion package of “emergency support” granted to Egypt on May 11, to assist the country in its struggle to stop its COVID-19 epidemic.

The IMF considers Egypt to be somewhat of a pre-coronavirus success story as it complied with IMF demands for increased privatization, cutting public spending, and deregulation of industry. In May, an IMF statement said, “as the crisis abates, measures to lower the debt level would need to resume along with continued implementation of structural reforms to increase the role of the private sector.”

Egypt-IMF relationship

But the COVID-19 pandemic’s impact on tourism, global trade and oil prices has significantly impacted Egypt’s economy. Egypt relies heavily on revenues from its hotels and resorts on the Red Sea as well as tourism to its historic landmarks. Reductions in global trade have meant Egyptian state coffers see shipping fees from its vital Suez Canal reduced significantly while oil and gas revenues from Egypt’s growing energy sector similarly fell dramatically.

The fact that Egypt had recently completed a three-year economic reform plan as part of a $12 billion IMF loan that concluded in 2019 appears to have done little for the country’s economic resilience, but further austerity and privatization would eventually produce better results, according to the Fund.

Foreign priorities

Egyptian President Abdel Fattah el-Sisi had received praise from his Western backers and international bankers for implementing unpopular austerity measures that caused a dramatic rise in prices for essential goods for poor and middle class Egyptians, including a large increase in the price of electricity and drinking water. But the moves have helped “attract foreign investment,” justifying praise from the Egyptian government’s financiers.

Egypt’s transition to the neoliberal economy that foreign powers mandate has done little to produce an effective COVID-19 response. Like other countries that follow this economic mantra, such as Brazil, the US, the UK and India, COVID-19 cases have exploded with little government assistance to the country’s poorest and most vulnerable communities.

Local suffering

Egypt’s government has distributed monthly assistance of $31 for informal workers, who make up a significant section of those working in its hospitality industry. The limited support for Egyptian citizens has seen 73% of Egyptian households report a decline in their incomes over the past months.

Like Brazil, the US, and the UK, Egypt is now rushing to reopen its economy, even though it recorded 1,625 new cases on June 26, with 62,755 total confirmed cases and 2,620 deaths. The necessity to bring in revenue appears to have outweighed any desire to control the local epidemic as hygiene standards and social distancing are seen as sufficient to again receive foreign tourists.

Egyptian citizens will have to again brace for austerity measures that cut government support for the poor and increase the cost of living, while the government hopes that this time, the IMF’s demands will produce the “resilient” economy that its financiers have repeatedly promised.

Lebanese Banking Sector ‘Unwilling’ to Reform

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On Thursday, June 18, Lebanese financial adviser Henri Chaoul resigned from his role in negotiations with the International Monetary Fund (IMF.) The adviser of the Lebanese Ministry of Finance expressed his exasperation with the Lebanese banking sector.

“I have come to the realization that there is no genuine will to implement either reforms or a restructuring of the banking sector, including the Central Bank,” Chaoul said in a statement.

The adviser accused Lebanese authorities, including politicians, central bank officials, and representatives of the Lebanese banking sector of dismissing the “magnitude” of Lebanese losses and accused all actors of embarking on a “populist agenda,” according to Reuters.

The government of Prime Minister Hassan Diab had introduced a plan based on government projections of losses amounting to $83 billion in the banking sector alone. The plan’s estimations of losses presented the first quantitative diagnosis of Lebanon’s intertwined crises that have led to rapid hyperinflation and rapidly falling living standards for Lebanese people.

Fundamental disagreements

Chaoul and the IMF appear to agree with the magnitude of the losses estimated in the prime minister’s plan, but Chaoul implied that the banking sector, including its central bank and a parliamentarian fact-finding committee, had presented very different numbers, challenging the government’s estimates. The failure of Lebanese officials to agree upon the scale of its losses amounted to a “dismissal” of the true problem, according to the adviser.

The former Lebanese finance minister and current Speaker of Parliament Nabih Berri said that the government estimates had been drawn up in a rushed manner that had led to mistakes and wrong assumptions. He told Lebanese broadcaster MTV that Lebanon would be unable to pay its bond obligations until 2043 as politicians aim to reach a compromise on the true number of losses.

The IMF itself has highlighted that the uncertainty over the true scale of Lebanon’s financial woes is a major stumbling block in the ongoing negotiations, calling for a “joint diagnosis” to establish a transparent diagnosis on which to base its talks.

“Lebanon needs to reach a common understanding of the source and size of its financial losses,” IMF spokesman Gerry Rice stated on the IMF website, calling the issues “complex.”

Reforms

The IMF will only provide support if the Lebanese government is willing to implement broad reforms, which could prove unpopular. “There is a need for comprehensive reforms in many areas, which requires acceptance and consensus from the society as a whole,” Rice stated.

But many fear the IMF will require unpopular neoliberal reforms that aim to cut public spending that could face significant resistance from Lebanon’s increasingly destitute population.

Public resistance to IMF demands for reform is highly likely as the IMF is a proponent of the “Washington consensus” that calls for cutting public spending, shifting taxation onto the poor, liberalization of banking, deregulation, and privatization.

Many countries who have followed IMF reforms have only seen their populations further impoverished as public spending is cut to allow for foreign debt repayments while halting growth and inflation.

US ambitions to weaken the influence of Hezbollah in Lebanon and neighboring Syria have resulted in tough sanctions, the Caesar act, which came into effect on June 17. The sanctions are aimed at Syria but will gravely impact Lebanon, which is one of the few remaining nations to trade with Syria.

The role of the US in further worsening Lebanon’s economic prospects in the midst of its interconnected health, economic, and financial crises has led some to urge the country to find funding from China instead.

Chinese alternative

China has been eager to work with Lebanon, as it sees its ports in Tripoli as an important possible link in its Belt and Road Initiative that aims to connect Europe with China through an ambitious infrastructure project that spans the historic silk route.

Hezbollah’s leader Hassan Nasrallah on June 16 announced that China is ready to invest in Lebanon’s infrastructure.

“Chinese companies are ready to inject money into this country,” Nasrallah stated on Hezbollah’s television network Al-Manar. Nasrallah argued that China would easily match the $10 billion sought from the IMF, with few of the painful reform demands.

While inviting Chinese investment could significantly boost Lebanon’s economic prospects, it would risk the ire of the United States who could apply sanctions to cripple the economy as it is currently doing in Iran and Syria.

Accepting IMF reforms would likely spark further popular unrest, while accepting Chinese investments could trigger a diplomatic conflict with the US. Even if Lebanon had a functional and effective government, the country is left with few good choices to resolve the suffering of its people.

Protests Rage On in Lebanon

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The Lebanese pound has lost a quarter of its value over two days and unemployment soars as the Lebanese become increasingly destitute, prompting another night of angry protests.

Protests rage

Angry protesters blocked roads across the country, with burning tires sending pitch black smoke into the night’s skies. What the protests lacked in size, relative to some of the mass demonstrations seen before the pandemic, they made up in intensity, hurling stones and fireworks at police who responded with tear gas and rubber bullets.

An announcement by the Lebanese central bank that it would inject more foreign currency into its market to stop the free-fall of the Lebanese Pound did anything but calm tempers. The Lebanese are exasperated by what they see as inefficient amateurism in government. Protesters appear to have little faith in their government’s ability to find a solution in coming talks with the International Monetary Fund (IMF).

Comprehensive reforms

Banks were a major target with several branches damaged or set alight as the Lebanese have few avenues left to convert righteous indignation into positive change for the country. The government of Hassian Diab is coming under increasing pressure as its promises of rapid reforms are yet to materialize.

Fears exist that the coming negotiations with the IMF will bring the painful austerity that usually accompanies assistance provided by the neoliberal institute. A Bloomberg reporter on June 4 asked the IMF, “In Lebanon it’s said that the IMF is asking to decrease government expenditures, will these costs of reforms fall on the poorest?” This prompted the IMF’s Communication Director, Gerry Rice, to vaguely emphasize the importance of “the right diagnostic and the right set of comprehensive reforms.”

Looming sanctions

The Lebanese appear to be completely justified in their frustration as further economic woes are on the horizon, a tie purposely made by a foreign actor. The US “Caesar Act,” a package of sanctions on Lebanon’s northern neighbor Syria, is about to destroy a large part of the country’s remaining international trade.

The sanctions are intended to cripple Hezbollah and perceived Iranian influence in the region, but they do so by attempting to impoverish the local population into revolt. For both Syria and Lebanon, trade with their neighbor has provided a fragile lifeline as both countries face a currency in free-fall that resulted in skyrocketing prices for basic necessities and food.

With few positives to look forward to and any optimism drained by an inefficient government, the Lebanese protests are set to continue as the people voice their exasperation with an increasingly worrying collapse of Lebanon’s future prospects.

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