Human vs machine, IMF in Cairo, interest payments on Egypt debt
By Farah Halime, Rebel Economy
“It underlined the indispensable role humans still play in a market dominated by machines.”
That’s a sentence from a Wall Street Journal story on the closure of the New York Stock Exchange because of Hurricane Sandy and how people are critical to its successful operation (and equally to its demise).
It also reminds me of a brilliant speech from Charlie Chaplin in The Great Dictator, which you must watch if you haven’t already. An excerpt from the speech:
“Soldiers! Don’t give yourselves to brutes, men who despise you, enslave you; who regiment your lives, tell you what to do, what to think and what to feel!
Who drill you, diet you, treat you like cattle, use you as cannon fodder. Don’t give yourselves to these unnatural men – machine men with machine minds and machine hearts! You are not machines, you are not cattle, you are men”.
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An International Monetary Fund delegation has arrived in Cairo, and maybe this time Egypt can present an economic plan that is worthy of almost $5 billion.
It has been a long drawn-out road of failed negotiations that have stalled for various reasons(initially Egypt turned its back on the IMF, saying it didn’t need the loan, then Egypt’s political parties couldn’t agree, and then the government asked for more money).
Rebel Economy has put together a timeline of Egypt’s interaction with the IMF, with historical details of the Egypt-IMF talks back in the 1980s.
This morning Ahram Online also published an interview with the IMF’s Middle East director Masood Ahmed.
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The biggest problem Egypt fears is to convince the IMF that it is doing a good job of reforming energy subsidies, or at least that it has a good plan in place. Unfortunately contradictory news reports on how reforms would take place and repeated comments from prime minister Hisham Qandil that energy subsidies will be removed are not helpful unless people see action on the ground.
What is clear is that along with subsidies, the government budget must be restructured to reallocate state cash where it is needed (ie health and education). Meanwhile, Egypt is struggling to pay off interest payments on government debt (ie bonds and bills that the government sells every week to try to plug its deficit).
One London-based economist working at an international organisation told me that high interest payments make up around 15 or 16 per cent of the budget – a huge drain on the government’s finances.
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A detailed Reuters story on how Egypt has secured oil supplies for the rest of the year, despite fears about its ability to make payments, from a small number of western suppliers who have agreed to deliver unusual grades of crude for hefty premiums
Obviously this is at a cost. But more so, it reflects Egypt’s narrowing supply base. Fewer and fewer are willing to supply Egypt. This is an unsustainable cycle which will end sooner or later.
In case you weren’t convinced, Egypt’s petroleum minister himself said delays in energy subsidy reform is costing EGP 10 billion (or $1.6 billion) every three months.
That’s on top of allocations already made for the energy subsidy. Phew.
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Egypt’s foreign reserves probably rose $300-400 million in October thanks to loans from Qatar and Turkey, Reuters reported, quoting a newspaper report from state-run Al-Gomhuria newspaper.
Reserves at the end of October will probably be $15.4 billion or $15.5 billion, up from $15.04 billion at the end of September, Al-Gomhuria said.
Usually when this type of story is leaked, it’s normally true but don’t let that comfort you.
The trickle of funding that is coming straight to the central bank only serves to stabilise the currency or for subsidies (see how energy subsidies seem to get into every part of Egypt?), rather than the economy. It appears like Egypt’s central bank is operating hand-to-mouth rather than coming up with a sustainable solution, like perhaps devaluing the currency.
Qatar lent Egypt $500 million in October, its second such loan in the last three months, and Turkey lent the country another $500 million, Reuters said.
Egypt drew $600 million from reserves to pay for petroleum imports and $100 million to repay foreign loans, the report said.
