Eco 357L

Summary by Mohamed Adlouni                                                                               

Readings:

1) Egypt: “Sadat faces a shaky financial future”. 

    Business Week: October 25,1976

2) Egypt: “If the poor should do more than grumble”.

    The Economist: November13, 1976

3) The World: “Those patient Egyptians lose their patience”.

    The Economist: January 22, 1977

These three articles, written during the Sadat presidency in Egypt, give some insight to the problems of the Egyptian economy during the late 1970’s. During this period the Egyptian government was engaged in a five-year development program to stimulate its economy and boost its gross national product greater than the 11 billion dollars it was producing at the time.

By 1980 Egypt owed 20 billion dollars in foreign debt to its investors and creditors. The five-year plan was funded by the International Monetary Fund, Chase Manhattan, and creditors from the oil rich countries like Saudi Arabia, Kuwait and the United Arab Emirates, who had formed the Gulf Organization for the Development of Egypt. Egypt received more foreign aid than any other country in the world since the Marshall Plan was implemented in Europe. Egypt was unable to come up with the necessary revenue from its domestic operations and was unable to generate a large enough return on investment from its imported capital. So to finance its short-term debt, Egypt had to borrow again from its creditors. But the IMF and GODE mandated strict regulations to assure that they would be paid back the amount owed to them. These readings concentrate on the regulations mandated by the IMF and GODE and how they affected the people of Egypt.

Egypt had originally asked the GODE for 12 billion dollars to help finance their foreign debt. The GODE only gave 2 billion because they were actively developing their own economies.  Egypt received over 1 billion dollars from America, and at least 500 million from the IMF in 1976. Egypt was constantly borrowing from the IMF and GODE in order to pay off short-term debts, while it’s overall tab was increasing beyond the point of no return. Thus far, it has been out of Egypt’s grasp to reduce the 20 billion dollars of foreign debt. Devaluating the pound and cutting off government subsidies inherently destabilizes an already tense domestic political scenario.

Cutting government subsidies was part of the plan set by the IMF and supported by the GODE. If Sadat implemented these rules, there would be either inflation, or an increase in the price of the subsidized goods. The possibility that the government would take away subsidized services led to riots. The Sadat administration was in a very difficult position because their options were to either devalue the pound or cut off government subsidies like imported food, transportation and medical services. Incumbent leftist movements like the Nasserists and Cairo Marxists also threatened political stability because they supported the ideology of the Nasser administration which was a socialist regime.

During this time, Egypt could have taken steps to help itself. Some policies of importance to Egypt’s situation were refinancing its debt through long-term official loans. Secondly, foreign export markets need be developed. Some regional strategies are that Egypt must reach a peace accord with Israel. Since 1967, 30 billion dollars worth of losses were a result of the war, money that could be used for development and settling the debt crisis. It is important to note here, that Egyptian policy makes scoffed at the GODE for asking them to cut subsidies when it was Egyptian leadership during the war that allowed for the increase in GODE wealth enjoyed as a result of increased oil production.

Most importantly, Egypt needs to find ways of generating revenue through expansion of tourism, its oil industries and the agricultural sector.