Mohammed Sultan - محمد سلطان
The prophecy of the SAP:
The Structural Adjustment Program's essential role is to create loans for the countries under fiscal imbalances, the negative gap between the revenue and the expenditure, to let them overcome such difficulties in the short term and strengthen their economies in the long term. The SAP requires the countries applying for the loan to implement certain policies in order to be eligible to receive the loans (Sanjaya, 1995). In the 1980s, the IMF created loans directed for the Sub Saharan Africa countries, for their progress was hindered by very severe economic crises (Robert, 1996). The vast majority of the Countries which were qualified- or trapped- for the load have been neither able to pay off the loan nor the debt. It even became worse where the accumulation of debt overweighed the original loan itself. Such disastrous outcome was an alibi for lenders, which are the major powers, to intervene in those countries in order to monitor their expenditure, and thus schedule how to get their money back. Was it just restricted to monitoring the budget? Was receiving the loan worthy of these complications?
As for the prerogatives of the IMF, it succeeded in reducing the inflation, budget deficit and debt services. However, it did not restore the pre-1980 rates of savings and investments, growth and the insufficient attention given to the social problems. In other words, the rate of unemployment and inequality got exacerbated and increased. The IMF's rhetoric blames the government intervention that accounted for the crisis in the second half of 1985, and as a way out of this dilemma the IMF recommended the affected countries to go through a new process of change under the Structure Adjustment Program "SAP". Such program is based on the expansion of the private capital that comes with the promise of prosperity and development. It comes with the call for lowering the rise of poverty under contraction and lowering the fall in poverty for a given expansion (Easterly, 2003). Such call was declared to be achieved under the adjustment lending programs for more than thirty-six countries who received the adjustment loans over twenty years starting from 1980.
Unfortunately, Easterly concluded that according to the done research the promise made by the IMF concerning controlling poverty under contraction is not feasible for the long run. The research shows that it even lets the poor to share less of the stake in the economic performance. To support the SAP, it has been found that the countries with economies under contraction with the SAP such strategy is less hurtful for the poor than other countries not adopting the SAP. As for the opponents of the SAP, they counter-argue that the economies that are not abiding by the SAP are the more pro-poor than the ones under the sap as Easterly
To precisely analyze the SAP drawbacks, I would start by stating the characteristics of the policies:
1- "Devaluate or Float": it aims it dealing with the currency in a way to increase the exports that can lead to earning more foreign exchange in order to pay the debt.
2- Let the interest rise comparably to other countries in order to encourage domestic savings and to attract the foreign financial capital.
3- Reducing the growth rate of the money supply in a way that limits the inflation.
4- Curbing the budget deficit.
How the SAP works? Firstly, it begins by having the structural reforms of the institutions forming the economy in order to make the change from the decision-making process and mentality, which will improve the functionality of the entire economic ground in the long run term. Secondly, privatization is also an essential part that should start by dominating the public sector and assets to induce productive investments. Thirdly, the taxation structure is to adopt the value-added taxes, which will encourage investments over-consumption. Fourthly, the legal discourse regulating and ruling the economy is to be in favor of the private investment and capital. Fifthly, liberalizing the trade and opening the market- through reducing the tariffs and empowering the private sector- to play its role in the competitive global market. Finally, even though the SAP removes the subsidies for essential commodities, like basic food, it assumes that the subsidies should be provided for whomever in a dire need for it. Yet, this trend has been always criticized in a way that asserts on the bias and direct role of the IMF in determining who is in need for the subsidies. The counterargument relies on the premise that who to identify the people in need? The government? The IMF? The civil society?
The myth of the four successes:
According to the author, Egypt during the 1980s and 1990 was deemed as one of the four successful Arab countries- Egypt, Morocco, Tunisia and Jordan -under the SAP program. The main success that Egypt made from the IMF's perspective is privatizing more than one-third of its public sector, not to mention that such percentage was till the 1990s, but it increased dramatically later on. Surprisingly, even though Egypt's economy rejuvenated a bit, there were very existential drawbacks that have negatively affected Egypt:
1- No significant improvement has been noticed in the trade balance equation, namely, the exports minus the imports.
2- The rate of growth of exports of goods and services got even smaller which was unlike to what the SAP proposed or deemed as the main reason to join the adjustment programs.
3- The amount of the foreign investment and money flow into the country declined to other reason that was affected by the SAP, mostly social and political ones.
4- The government neglected the social problems which accounted for troubling the Egyptian society and increasing the socioeconomic gap between the different classes.
Politicization and dependency:
Concerning the external debt support, the decision making processes about either giving a loan or a grant have been always directly linked to the consent of the United States of America due to the strong relationship between both. Therefore, Egypt has been looked upon as an ally because of singing the Camp David Accord with Israel, the closest ally to the U.S. Also, Egypt was generously rewarded, for it contributed militarily against Iraq in 1991. According to Mohammed Mossallem, an investment analysist and a Ph.D. candidate, in his report about the IMF and the Arab world, such reward was in the form of a huge relief debt package and even a lending program to assist Egypt, yet backed by promoting liberal economy approach (Mosallem,M). In 1991, Egypt signed the structural adjustment loan with the IMF that started with a period of rapid stabilization that paved the way for reducing the fiscal deficit, inflation and stabilizing the nominal exchange rate, which is the value of the Egyptian pound in relation to other currencies (Harrigan and El Said, 2014).
Domestic performance and Poverty:
According to Mossallem, the rapid stabilization program, in fact, in the 1990s occurred even before the government had "sensitized itself to the issue of poverty" (Harrigan and El Said, 2014). Then poverty got even worsened between 1995 and 1996 due to the rush decision made for liberalization without considering the negative social effects (El-Saharty, Richardson and Chase, 2005). To analyze the domestic performance Egypt's indicators for the well-being of the domestic economic growth did not meet the criteria set by the IMF and were promised to be reached. Moreover, the rate of investment decreased noticeably which, in return, hindered the GDP from increasing. Another feature that is taken into consideration as an indicator of development is the livelihood of the people (Mamani and Lanz, 2014).
One major aspect to clarify such tendency is the existence of the informal sector. From a macroeconomic perspective, the mere reliance on the GDP as an indicator of employment is totally irrelevant since the informal sector is not present, so the information is inaccurate and deceitful. The informal sector is what the poor heavily relays on as Dr.Adel Beshai explained, professor of economics at AUC. Accordingly, the structural adjustment reforms in the economic arena have no tangible implication on the informal sector, and thus the livelihood of the poor is indifferent. In other words, the poor see no improvement from the SAP because the flow of money support in the form of loans or grants is solely directed to the formal sector which is run by the rich and the winning coalition of the regimes in the dictatorships.
The aftermath of SAP establishment in Egypt:
In 2012, the IMF released an assessment declaring the positive indicators of the Egyptian economy, such as the growth during 2005-2008 contribute to "a 14 percent decline in the proportion living below the poverty line" (IMF, 2010). As an Egyptian who lived this time once I read that, I embarked on searching the authentication of such reveals. According to Hanna Bargawi, Professor of economics in the University of London, a more precise investigation of the revealed data is entirely contradictory what has been said. Comparing the trend of how GDP kept growing, over the 2000-2009 period, to the swift rise in poverty asserts one observation; there is a manipulation in released characters.
Even if the growth was relatively correct, was it due to the SAP? Regardless to the rumors that the macro-stability and the open market would lead to increasing the exports, the growth of the Egyptian economy was indeed by another catalyst. According to Cammet et al (2015), one of the major observation about the financial cycle of the Egyptian economy is that Egypt's economy is growing because of the public investment in the infrastructure-based projects. Also, it is noteworthy to mention that- even when Egypt joined SAP- the percentage of the private investment has been hovering around 21 percent of the GDP. The final observation that Cammet el al made is about the sources of income in Egypt, like Suez Canal and the remittances of the workers. Such sources have been always the main pillars upon which the balance of the payment depends on- even after joining the SAP, privatizing the capital, and opening the market.
Since the main concern of the IMF irrelevant to the social dimension, all the regression was unconsidered, and the recommendation of enhancing the austerity measures was the sole goal. Masood Ahmed, the director of the Middle East and Central Asia Department of the IMF has explained that the IMF in the era post-2011, after the wave of the Arab Spring, has been calling for development in the sense of inclusive growth that aims at creating jobs backed by the social policies.
Finally, according to the IMF website, Egypt has received three loans from the IMF till the revolution of the 25th of Jan. the first loan was during the reign of President Anwar Al-Sadat. In 1986, Egypt asked for 185.5 billion dollars to fight the inflation and the external debts, and for receiving the loan Egypt followed the SAP's policies, such as removing the subsidies, which accounted for ' the Uprising of Bread'. The other two times were under the reign of Mubarak, and each time the amount of the loan was getting higher with more privatization and liberalizing the market.
I do think that receiving the loans help Egypt significantly to overcome the financial difficulties. Yet, the policies which have been dictated by the Britton wood, froze Egypt from pursuing its potentials. The burden of the debt has Egypt in a way in which the country's main attention is focused on paying off the debt. Consequently, such mentality added to the misery the Egyptian live. Another aspect that added to not making use of the loans is corruption. The corrupt governments directed the loan to their personal interests; however, I think the IMF was deliberately not commenting about this issue because it was a matter of alliances and political interests. Adopting the same methodology would explain why the IMF supported and explained Mubarak's regime and the fake economic reports were released by the government.
References
Bargawi, H. (2014). Economic Policies, Structural Change and the Root of the "Arab Spring" in Egypt, Review of Middle East Economics and Finance, 10(3). Retrieved from: 10.1515/rmeef-2014-0034
Cammet,M, Diwan, I, Richards, A& Waterbury, J. (2015). A Political Economy of the Middle East, 4th edn. Colorado: Westview Press.
Easterly,W. (2003). The IMF and World Bank Structural Adjustment Programs and Poverty. The National Bureau of Economic Research. Retrieved from: http://www.nber.org/chapters/c9656
El-Saharty, S, Richardson, G & Chase, S (2005). Egypt and the Millennium Development Goals: Challenges and Opportunities. Washington DC, World Bank.
Harrigan. J and Hamed El-Said. (2014). Economic Reform, Social Welfare and Instability: Jordan, Egypt, Morocco, and Tunisia, 1983-2004. The Middle East Journal 68.1. PP: 99-121.
IMF. (2010). Arab Republic of Egypt: 2010 Article IV Consultation. IMF Country Report No.10/94.
Marmani,B and Lanz,D (2014). Shifting IMF Policies Since the Arab Uprisings Centre for International Governance Innovation, Policy Brief no. 34. Retrieved form:http://www.cigionline.org/sites/default/files/cigi_pb_34_0.pdf
Michael. P and Jeffery. A. (2003). Managing Currency Crises in Emerging Markets. University of Chicago. Retrieved form: http://www.nber.org/books/dool03-1
Mossallem, M. The IMF in the Arab World: Lessons Unlearnt. Bretton woods Project.
Robert, L. (1996). Structural Adjustment in Sub-Saharan Africa. Longman.
Sanjaya, L. (1995). Structural Adjustment and African Industry. World Development 23(12):2019-2031. DOI: 10.1016/0305-850x(95)00103-j
2 تعليقات
Excellent piece!
ردحذفThanks! I appreciate it.
حذف