Thursday, May 9, 2013
Rebecca M. Nelson
Analyst in International Trade and Finance
Jeremy M. Sharp
Specialist in Middle Eastern Affairs
Congress, which annually oversees and appropriates $1.55 billion in bilateral foreign aid to Egypt, is following the political and economic situation in Egypt closely. Economic conditions in Egypt have deteriorated rapidly since the 2011 “revolution.” Political uncertainty abruptly reduced foreign capital flows into Egypt; growth, while still positive, has slowed substantially; the central bank is at risk of running out of foreign exchange reserves; and unemployment has increased from 9.2% before the revolution to 12.3% in 2012. Many policymakers and analysts fear that the fragile economic conditions in Egypt jeopardize the country’s political transition and broader stability in the region.
Egyptian authorities and the International Monetary Fund (IMF) have been in negotiations for more than two years over an IMF loan to Egypt in exchange for policy reforms that, if successful, could stave off economic collapse and create more “inclusive” growth. The IMF reached tentative agreements with first the military-controlled Supreme Council of the Armed Forces (SCAF) in June 2011 and later with Egyptian President Mohammed Morsi in November 2012. The November 2012 program would have provided $4.8 billion in assistance, and other donors pledged about $9.7 billion in additional financing once the IMF program was in place. No agreement has been finalized or implemented to date.
Egyptian authorities have been reluctant to commit to economic reforms that may be politically unpopular and increase the country’s debt. Pressure to cut fuel subsidies is a particular issue. More broadly, many Egyptians associate the IMF programs in the late 1980s and 1990s with adverse social outcomes. On its part, the IMF has resisted a program that does not have sufficient conditionality consistent with its lending policies. Continuing political concerns and uncertainty in Egypt have also contributed to the delay. In the absence of an IMF agreement, the Egyptian government has recently secured financial support from Libya and Qatar.
Issues for Congress
Some lawmakers who oppose ongoing U.S. bilateral assistance to Egypt may oppose any existing or future IMF support of Egypt, on several potential grounds. Some may be concerned that in the rush to stabilize Egypt, the Administration could be too lenient in terms of the reforms it seeks from the Egyptian government. Others may not want the Administration to overly politicize an IMF loan. They fear that the application of too much pressure on the Morsi government could make accepting a possibly unpopular IMF deal too politically controversial to pursue and that the lack of IMF involvement in Egypt could undermine U.S. interests in the region.
The United States makes the single largest financial commitment to the IMF, and, with the largest voting power at the IMF, the United States wields a high degree of influence over IMF decisions. If Congress wanted to shape U.S. policy toward Egypt at the IMF, it could pass a “legislative mandate” legislation directing the U.S. representative at the IMF to use its “voice and vote” to push for certain policies toward Egypt at the IMF.
Lawmakers may also want to use the terms of IMF conditions as “benchmarks” for the provision of existing or new bilateral economic aid to Egypt. Congressional concerns about bilateral debt relief are, in part, related to the absence of an IMF agreement. Additionally, legislative language (S.Amdt. 44) proposed in March 2013, but not adopted, would have tied U.S. bilateral economic assistance to Egypt to, among other things, an IMF program.
Date of Report: April 29, 2013
Number of Pages: 18
Order Number: R43053
R43053.pdf to use the SECURE SHOPPING CART
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