Tuesday, August 28, 2012

The Hidden Costs of Egypt’s IMF Loan

President Mursi’s bid for a $4.8 billion loan is raising questions as to what the exact benefits of increasing Egypt’s debt will be and the likely long-term repercussions on the economic situation.

Cairo – There have been some unexpected reactions from Egyptian political forces to the multi-billion dollar loan which President Mohammed Mursi is trying to secure from the International Monetary Fund in the next few months.

Opposition to the loan has been voiced by the Freedom and Justice Party (FJP), the political arm of the Muslim Brotherhood (MB) from which Mursi hails. It objected to the lack of available information about the terms of the proposed deal. Abdul-Hafez Sawi of the FJP’s economy committee explained that the party still holds the view it took when the loan was proposed to parliament by the military-appointed government of Kamal al-Ganzouri. "We still don’t know anything about the program under which Egypt will get the loan or the measures and steps that will be taken to cut government spending, reform fiscal policy and collect unpaid taxes," he said. With the amount to be borrowed now being put at $4.8 billion rather than the original $3.8 billion "we need to consider who will bear the burden of repayment."

Highly interesting is the fact that the FJP did not take issue with the loan on ideological grounds, given the Islamic prohibition on usury. Sawi argued that it is permissible to pay interest on loans under the expediency provisions of Islamic law, especially when alternative support from fellow Muslims is unavailable – "for example, when the wealth of the Gulf is spent on buying palaces in Paris rather than helping the poor on the Comoros Islands." Sawi added that he hoped it would one day become possible "to propose Islamic ways of providing finance to the international institutions." Read More