Extensions of Remarks

4462 EXTENSIONS OF REMARKS March 4, 1992 EXTENSIONS OF REMARKS ECONOMIC SITUATION IN EGYPT Debt service problems appeared in 1980 Egypt's situation since August 1990 has given when Egypt's external debt surpassed GNP Egypt what could be its best opportunity to and the government began to accumulate ar proceed with the needed reforms. Undue hesi HON. LEE H. HAMILTON rears to official and commercial creditors to tation in restructuring the economy could OF INDIANA cover growing current account deficits. By draw the economy back toward the economic IN THE HOUSE OF REPRESENTATIVES 1984, interest payments arrearages had be morass from which it has just emerged. Wednesday, March 4, 1992 come serious because oil export earnings had II. DEVELOPMENTS SINCE LATE 1990 declined from their 1981 high and the govern Mr. HAMILTON. Mr. Speaker, I would like to The Gulf Crisis of late 1990 was an eco ment was unable to identify new, alternative nomic watershed for Egypt. Assistance to bring to the attention of my colleagues a re sources of foreign exchange. From 1984 to Egypt as a coalition partner dramatically port on the economic situation in Egypt sut:r 1988, debt service arrears increased from changed the conditions which confronted the mitted to the Congress by the Agency for about Sl billion to $4 billion. Scheduled Debt Egyptian economy. While there were foreign International Development Cooperation Act of service rose from S4 billion in 1983184 to $7 .6 exchange gains from the sudden spike in the 1985, as amended. billion in 1990. In late 1984 and through 1985, price of oil, there were large losses in tour the government of Egypt began deliberations Egypt is the second largest recipient of Unit ism, worker remittances and some nontradi on the underlying causes of the debt service tional exports. Domestic economic pressures ed States bilateral assistance and the trans problem and initiated a number of minor formation of its economy, its privatization, and for food, housing and jobs increased as Ku austerity measures, including subsidy reduc waiti refugees and Egyptian workers fled the its reform are important interests we share tions. In 1986, following a further decline in Gulf. The business climate was depressed. with Egypt. the price of oil, with severe macroeconomic Without help, the economy appeared to be on The report was submitted to the Congress imbalances and a dramatic increase in debt the verge of a major crisis. The IMF noted in February 20, 1992. The first part of the report service arrearages, the government opened retrospect that, "In such a crisis environ follows here and attachments A and B to the discussions with the IMF for a stand-by ar ment massive economic disruption was a rangement and with the Paris Club for a debt possibility." report, providing tables and background, are rescheduling. retained in the files of the Committee on For However, Egypt's early and staunch sup To stablize its macroeconomic situation, port of the multinational effort to restore eign Affairs: Egypt negotiated an 18-month stand-by with Kuwait led to important short-term relief ANNUAL REPORT ON ECONOMIC CONDITIONS IN the IMF, which covered the period April 1987 from the country's economic problems. As EGYPT, FEBRUARY 1992 to October 1988. In early 1987, Egypt resched one of several "front line" states in that I. SUMMARY AND CONCLUSIONS uled S7 billion in arrears and maturities com conflict, Egypt received substantial levels of A. Conclusions ing due to Paris Club creditors .in 1987-88. new external assistance via. the Gulf Crisis The stand-by called for a number of eco Financing Working Group (GCFCG) coun Egypt should be able to meet its external nomic reforms including initial actions to debt service obligations in 1992 because of tries. In addition, the President made a de devalue the currency, minor increases in in termination that reduction of Egypt's out the relief provided by external transfers and terest rates and budget deficit reduction, pri debt forgiveness provided in conjunction standing Foreign Military Sales debt to zero, marily through partial price corrections to pursuant to the authority in Section 592 of with the Gulf Crisis, the country's foreign reduce subsidies. In addition, the IMF and exchange reserve situation, and the debt the Foreign Operations, Export Financing, Paris Club understood that stronger meas and Related Programs Act of 1991, was essen service relief following the Paris Club debt ures would be taken before the end of 1987 in rescheduling. tial to the national security interests of the order to increase the speed of economic sta United States and to enhance the chances for Egypt should also be able to continue to bilization. service its debt in the medium-to-long term peace and stability in the Middle East. As a By November 1987, the inadequacy of the prerequisite to forgiving Egypt's $6.7 billion if it stays the course on the ambitious eco Egyptian reform effort became clearly mani nomic reform program on which it has em military debt, the statute required the Presi fest in missed IMF performance targets and dent to seek comparable debt relief from barked (and on which it is making notable the continued deterioration in key macro progress) and if external factors such as in Egypt's other official bilateral creditors. The economic indicators. The 1987 stand-by be Administration was successful in this regard. dustrial country growth, oil prices, tourism came inoperative and negotiations began in and remittance earnings remain favorable. Gulf States and other creditor countries can early 1988 for a new stand-by arrangement. celled some $6.2 billion in Egyptian debt. To B. Background and Summary By the early summer of 1990, Egypt's lack of gether, the debt reduction of about Sl2.9 bil For nearly two decades, Egypt's centrally foreign exchange threatened its ability to lion reduced Egypt's debt service burden in planned economy stimulated consumption meet Brooke-sensitive debt service payments the first year alone by Sl.3 billion. Other and domestic investment through subsidized to the U.S. and the country was estimated to creditor countries chose to take action in foreign exchange, domestic consumer goods have accumulated SlO billion in arrears. the Paris Club framework, which would de and resources including energy (see Attach Without help, the economy appeared to be on pend on Egypt obtaining an IMF program. ment B for a more complete survey). The the verge of a major crisis. The situation With the breathing room provided by ex principal external sources of funds were oil changed markedly during the Gulf Crisis and ternal assistance and debt relief, movement exports, Suez Canal tolls, remittances from its aftermath, with debt forgiveness, large toward a reform program accelerated. In workers abroad and bilateral foreign assist inflows of donor assistance, a new IMF early 1991, Egypt implemented a number of ance in the form of loans, credits, credit stand-by and agreement on a World Bank prior actions required by the IMF, including guarantees and grants. Egypt borrowed heav Structural Adjustment Loan. After the first floating foreign exchange rates, freeing in ily during the 1970's and 1980's to finance review in December 1991, the IMF Board ap terest rates and raising energy prices. On consumption, infrastructure and military proved continuation of the stand-by and April 19, 1991 Egyptian authorities formally spending. By 1980, external debt stood at modified targets for the remainder of the submitted a request to the IMF for a new nearly S21 billion (98% of GNP and 227% of program. stand-by arrangement. On May 17, the IMF exports). By 1985, It had doubled to $42 bil The significant easing of its debt service Board approved a stand-by covering the pe lion before peaking at $55 billion (including burden, donor transfers and the economic riod ending November 20, 1992. Paris Club arrears) in 1990. This placed the debtJGNP policy changes implemented during 1991 have members agreed to May 1991 to reduce ratio at roughly 163% and the debt/export greatly strengthened Egypt's capacity to Egypt's bilateral debt by 50% of the present ratio at about 678%. By 1990, according to service its debt. However, some difficult value over three years, conditioned on adher World Bank data, debt service absorbed 45% times lie ahead if Egypt is to capitalize on ence with IMF program criteria.1 On July 8- of goods and services export earnings, with its newly found gains. Retaining a better 21.8% accounted for by interest payments balance in external accounts and growth in 1 Because this figure reflects the present value of alone. The bulk of this debt resulted from the economy will require continued, and the debt forgiven, data for changes is the debt stock long term official borrowing from bilateral sometimes unpopular, comprehensive re do not necessarily add to these amounts. Rather, the sources (see Table 5). form. The donor and creditor response to reduction appears more starkly in outyear debt • This "bullet" symbol identifit:s statements or insertions which are not spoken by a Member of the Senate on the floor. Matter set in this typeface indicates words inserted or appended, rather than spoken, by a Member of the House on the floor. March 4, 1992 EXTENSIONS OF REMARKS 4463 9, 1991, for the first time in a decade, a World iffs were increased by 15 to 40 percent. Cot SAL conditionality and performance mon Bank-led Consultative Group of bilateral and ton prices are to reach 60% of world prices by itoring tend to emphasize the structural di multilateral donors meeting in Paris re 1991/92 and 66% in 1992193, eventually to ap mension of the overall reform effort.

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