Morsi continues to panic

Morsy suspends tax plan, calls the increase a 'burden' on average citizen | Egypt Independent

President Mohamed Morsy has decided to suspend wide-ranging changes to the country's tax laws that had been signed earlier this week but just came to light Sunday, calling for "societal dialogue" and further consultation before implementing them.

In an announcement early Monday morning, Morsy said the taxes would amount to an "additional burden" on the average citizen.

"The president of the republic feels the pulse of the Egyptian street, and he realizes how much the citizen is bearing and struggling from his burdens in this difficult economic period," the statement said, according to the website of the state-owned newspaper Al-Ahram.

This planned increase in government revenue is an important part of the IMF agreement signed by Egypt. Suddenly, after months of negotiations in which there was no "societal dialogue" at all, Morsi decides that it won't do? The main measures were going to be an increase in top-level income tax rates and a 1% on sales tax which would have been felt more widely. The excise tax increase on things like cigarettes have happened annually for years. 

There's a confident president for you. 

Egypt parties, NGOs against IMF deal

From an open letter to the IMF and the prime minister of Egypt now circulating:

Dear Dr. Qandil and Ms. Lagarde,

We, the undersigned civil society groups and political parties, are writing to express our concerns about the proposed $4.8 billion International Monetary Fund (IMF) loan to Egypt that is currently under negotiation. We reject the loan negotiations on the following basis:

The negotiations of the terms and conditions of the loan agreement, including the government’s economic reform program, have lacked transparency on the part of both the IMF and the Government of Egypt. Moreover, these negotiations have continued in the absence of an elected parliament, which was dissolved on 14 June 2012, and with the president of Egypt holding full legislative authority. Any agreement under these circumstances would contravene the democratic principle of separation of powers and Egypt’s longstanding constitutional requirement of parliamentary oversight over executive decisions.

Furthermore, the public consultations carried out by the government to date to solicit societal feedback on the loan have been exclusionary and inaccessible. They do not fully represent Egypt’s civil society and political groups.

There is no clarity on the part of the government about how the loan will contribute to a national economic plan of inclusive growth and social justice that addresses the structural problems of the Egyptian economy and meets the needs of the Egyptian people. We worry that this potential loan agreement and the policies connected to it will represent a continuation of the old regime’s economic policies, particularly as they relate to the incursion of debt. The austerity measures associated with this potential loan agreement, including cutting subsidies as well as other deficit reduction policies, may aggravate the economic deprivation of a large section of the population, threatening their basic economic and social rights.

With little transparency and no clear economic program, the potential loan agreement continues to lack the “critical mass” of support that the IMF requires as a necessary condition for financial assistance. For that reason, we believe that negotiations for the proposed loan should be frozen.

Full letter here. [PDF]

Even if you think the IMF bill is necessary (a cash influx certainly is) it is rather puzzling why the IMF would not go ahead without parliamentary approval six months ago but is ready to steam ahead now.

On the IMF and Egypt

IMF U-Turn in Jordan Shows Egypt Need to Engage Public on Policy

Alaa Shahine and Mohammad Tayseer, reporting for Bloomberg:

Mohammad al-Sheikh was among hundreds of Jordanians who joined protests against an increase in fuel prices, pushing King Abdullah II to scrap a policy aimed at meeting pledges to the International Monetary Fund.

“The government increased the prices in secret, like it was afraid of something,” al-Sheikh, an air conditioning salesman, said in an interview in Amman, explaining why he joined a street protest for the first time in his life. “This is provocative. We have the right to know.”

Al-Sheikh’s comment signals the new engagement among Arab citizens after the protests that brought down governments last year. A consequence is that the fiscal restraint backed by the IMF and investors is harder to implement without the kind of broad support that requires a public debate. That’s especially resonant in Egypt, where talks with the IMF on a $4.8 billion have been on and off for more than a year.

Mohamed Mursi, Egypt’s first freely elected president, already faces near-daily strikes by labor groups empowered by last year’s uprising. After campaigning on the promise that he had a detailed plan to end Egypt’s worst slump for a decade, Mursi is coming under fire for stalling on the specifics of what his government will commit to in return for IMF money.

“If I were the government I would start talking in a language that the average man on the street would understand,” said Mohamad Al-Ississ, assistant economics professor at the American University in Cairo. “A quick solution is going to bring down the government with it.”

International financial institutions cannot reveal their own demands without the approval of the government. So there has to be more pressure on the government to reveal the terms of the loan — and sell it to the public — than before.

The irony about the current situation is that for much of 2012 the IMF did not want to go ahead with the loan (unlike the World Bank) because parliament was contesting it as part of the MB-SCAF-Ganzouri cabinet fight. But now that there is no parliament but an elected president, the IMF appears satisfied that there is consensus! The Qandil government might be better than the Ganzouri one — in fact it almost certainly is more coherent, at least — but the current negotiations are essentially taking place with one political group (the Brothers) and the technocrats at the Ministry of Finance, whereas at least beforehand there has been consultation with the broader political spectrum.

Yes, there is a risk that this simply become about the politics rather than the merits of the plan — after all the MB itself opposed the plan under a certain set of political circumstances but now unreservedly endorses it, even dropping ethical objections to the fact that IMF loans are not disbursed under Islamic finance principles. But surely that was the point of making a fuss about democratic accountability and consensus in the first place, no?

IMF denies reports it negotiated loans with Hezbollah - Haaretz - Israel News

IMF denies reports it negotiated loans with Hezbollah - Haaretz - Israel News
I was tempted to link to the FT's allegation yesterday but they seemed rather phantasmagorical. The IMF would "negotiate" loans with Hizbullah the day Bibi Netanyahu declares himself in favor of the one-state solution.
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IMF: Midde Eastern economies are buffering global shock

From the Transcript of a Press Conference on the International Monetary Fund's World Economic Outlook, a bit on the outlook for the Middle East:
"QUESTION: We talked almost about all the world's economy. We did not talk about the Middle East. So what's the outlook for the Middle East? And what do you expect them--what kind of role you're expecting for them to play? And if you have time, also I would like to talk about the Lebanese example, because I think if not the only country, like one of the fewest country that was not--they were not affected by the financial crisis. So Mr. Blanchard or anyone. Thank you. MR. DECRESSIN: Yes, we see growth in the Middle East slowing from around 6 percent in 2008 to 2.5 percent in 2009 and 3.5 percent in 2010. So, this is a much better scenario than the one that we have for the euro area or the U.S., for example. So what's happening in the Middle East? You have first the oil price decline which is affecting the economies; and, second, the general decline in global trade. And then for some countries in the Middle East, also the financial crisis. There are some instabilities in some banking systems. Now, the governments have, in our view, reacted very forcefully. They had large fiscal surpluses during the oil price boom in 2008 and 2007 and so they've built up large asset positions. And what they are now doing is they are basically running large deficits to support the economies. And in that sense, they will soften the decline that is going to happen to non-oil activity, and we think that this is very important. Saudi Arabia, I think, among the G-20 is the country that gives the largest fiscal stimulus, and rightfully so. At the same time, countries have also pulled all the stops with respect to monetary easing that they can pull, lowering reserve requirements, for example, and so forth. They have also injected liquidity in their banking systems. Countries have put money on the table for recapitalization. So on the whole, it's a pretty strong policy response, and I think this validates our forecast of a decline in the growth rate, but still positive growth of around 2.5 percent this year. Now, as to Lebanon, Lebanon has been a financial center, and our reading is at least that the country will be quite heavily affected. They've had growth of around 8.5 percent in 2008, and they're going down to 3 percent. So they've been growing a little more than the average in the Middle East in 2008, and they are falling down to approximately the same level as theaverage in terms of growth rates. And there the financial sector is playing a big role as well because it's a big part of the economy, and with generally lower activity everywhere in the Middle East, that will also reduce the financial flows from other Middle Eastern countries to Lebanon, and it will reduce the profitability of the banking sector."
Since Lebanon is kept afloat by financial flows from elsewhere in the region and beyond, one should keep in mind how this will affect the political climate post-elections. When the pie shrinks, there's more fighting for a slice... Note that in chapter two of the IMF's report on the global crisis, there is a section called "Middle Eastern Economies Are Buffering Global Shocks". So basically Middle Eastern countries, esp. oil producers, are providing relief for the advanced economies of Europe and North America whose financial irresponsibility caused this crisis. And many of these countries, even when they have a lot of petrodollars, are poor. (Not to mention whatever kind of pressure is being put on major OPEC producers to keep oil prices low during the recession, beyond falling demand.)
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