This thesis has been approved by

The Honors Tutorial College and the Department of Business

______

Dr. Ziad Abu-Rish Assistant Professor, History Thesis Adviser

______

Dr. Raymond Frost

Honors Tutorial College, Directory of Studies

Business

______

Cary Roberts Frith Interim Dean, Honors Tutorial College

The Impact of International Monetary Fund and World Bank Involvement on the Economic Development of

______

A Thesis

Presented to

The Honors Tutorial College

Ohio University

______

In Partial Fulfillment of the Requirements for Graduation from the Honors Tutorial College with the degree of

Bachelor of Arts in Business

______

By:

Mozika Maloba

April 2019

ii

Table of Contents

Introduction………………………..………………………..………………………….1

Chapter 1: Development under Nasser & Sadat………………………..…………….9

Chapter 2: IMF & World Bank Fiscal Policy Involvement 1978-2011……………...40

Chapter 3: IMF & World Bank Involvement after the 2011 Revolution…………...65

Conclusion………………………..………………………..……………………………91

Bibliography………………………..………………………..………………………….96

iii

Introduction

Since their establishment in 1945 as part of the post-World War II international economic order, the World Bank and International Monetary Fund (IMF) have been funding development projects and programs around the world. The Middle East and North Africa

(MENA) region has been one of the primary arenas of World Bank and IMF activity.

Throughout this time, the content and nature of these programs have reflected norms about development. Much of these programs up to the 1970s supported state-led economic development, however, since then, the IMF and World Bank have emphasized macroeconomic structural adjustment as either the goal of their development assistance or as conditions for it.1 While some of this development assistance has taken the form of outright grants, the bulk of the amount when it comes to the MENA region has been in the form of loans.

The structural adjustment loans (SALs) created by the World Bank and IMF are made to assist developing countries with their current account deficits and development projects by providing financing over a period of several years. All of these loans come with conditionalities vis-à-vis restructuring of tariffs, subsidies, public employment, and other state spending and budgeting matters.2 The professed goal of these projects and

1 Mokhlis Y. Zaki, “IMF-Supported Stabilization Programs and Their Critics: Evidence from the Recent Experience of Egypt,” World Development 29, no. 11 (2001): 1867-1883.

2 William Easterly, “What Did Structural Adjustment Adjust? The Association of Policies and Growth with Repeated IMF and World Bank Adjustment Loans,” Working Paper 11, Center for Global Development (2003): 3.

1 their conditionalities is to strengthen the receiving country’s balance of payments while encouraging economic growth and development. Over the past forty years or so, such programs have effectively encouraged the unraveling of state-centered economies with the objective of turning them into market-based ones, ultimately—according to their spokespersons—improving efficiency, encouraging growth, and advancing development.

However, these programs have not been without their critics. Much of the criticism centers around the macroeconomic structural adjustment conditionalities that many argue sacrifice growth instead of encouraging it.3 The past plus-forty years of such policies offers ample empirical data to explore the legitimacy of those criticisms and assess the long-term effects of the IMF and World Bank-sponsored programs. As one of the most celebrated cases by both institutions, and one of the earliest and largest recipients of

World Bank and IMF development assistance, Egypt offers an excellent case study through which to anchor such assessment and analysis.

Under President (r. 1952-1970), Egypt featured a dramatic political, economic, and social transformation underpinned by the institutionalization of state-led economic development strategy. Key aspects of this transformation were the exponential expansion of the public sectors supported by large-scale nationalization, land redistribution, infrastructure investment, rapid industrialization, and the diversification of the economy.4 By the early 1960s, the Egyptian economy was transformed from an open

3 Hans Lofgren, “Economic Policy in Egypt: A Breakdown in Reform Resistance?” International Journal of Middle East Studies 25, no. 3 (1993): 407-421.

4 Dina Craissati, The Political Economy of and Sadatism: The Nature of the State in Egypt and Its Impact on Economic Strategy (Montreal: McGill University, 1989), 42-75.

2 economy, based in agricultural export and heavily reliant on private and international capital, to an economy dominated by the Egyptian state. Accompanying this transformation was the introduction or expansion of various social provisions such as education, health care, and labor rights, which in turn facilitated an unprecedented expansion of the ranks of the middle class. However, this developmental trajectory confronted serious constraints in the form of capital shortages, inefficiencies, and politicization, rendering the economy (and with it the regime) vulnerable to multiple crises.5

After Nasser’s death in 1970, President came to power and brought with him an entirely new economic strategy underpinned by a much more open policy toward international capital and the domestic private sector.6 This new strategy was centered upon the idea of seeking out new sources of capital, which in turn necessitated a restructuring of the economy. It is in this context that the World Bank, IMF, and US government emerged as the financial backers of the new development strategy through a complex series of grants, loans, and evening advisory relationships. Since then,

Egypt has become an effective posterchild of both sides of the debate on the role of international financial institutions, structural adjustment programs, and economic development in the MENA region and beyond.

5 Ishac Diwan, Melani Cammett, Alan Richards, and John Waterbury. A Political Economy of the Middle East, 4th ed. (Boulder: Westview Press, 2015).

6 John Waterbury, The Egypt of Nasser and Sadat: The Political Economy of Two Regimes (Princeton: Princeton University Press, 1983), 123-128.

3

Scope and Aims

To wholly analyze the subject of the World Bank and IMF’s impact on the on the economic development of Egypt, this thesis begins with the period prior to their involvement and narrates the introduction of that involvement, its trajectory, and the accompanying changes. This thesis therefore covers the period between 1952 and 2018, with a particular emphasis on the latter half of the period. This includes the successive regimes of Gamal Abdel Nasser, Anwar al-Sadat, , and Abdel Fattah al-

Sisi. The thesis culminates with a consideration of the most recent iteration of the relationship between international financial institutions and Egypt: the IMF’s approval of a $12B Extended Fund Facility (EFF) loan in November 2016 and its various manifestations during the subsequent two years.7

This thesis focuses primarily on Structural Adjustment Programs and loans with a fiscal policy component that were introduced after the 1970s by the IMF and World

Bank. This is due to the fact that these programs had conditions attached to them such as tax increases, the lifting of business regulations, etc., that affected the development of

Egypt’s economy. These programs included what the IMF and World Bank believed to be the best options for Egypt in order to decrease its overall deficit. Other development programs such as infrastructure funding projects, while important, do not have as much of a role in changes in fiscal policy. Fiscal policy changes inherently can affect all aspects

7 "IMF Executive Board Approves US$12 Billion Extended Arrangement Under the Extended Fund Facility for Egypt," IMF Press Release No. 16/501, 11 November 2016, https://www.imf.org/en/News/Articles/2016/11/11/PR16501-Egypt-Executive-Board-Approves-12-billion- Extended-Arrangement.

4 of economic development where as individual development projects have a much more limited effect. Additionally, this paper’s approach to the topic of economic development heavily involves the IMF, World Bank, Egyptian government’s role, and the roles of social actors, not just the role of the organizations themselves.

There are four major research questions that guide this thesis’s investigation into the role of the IMF and World Bank:

1. How has the nature of development assistance offered by the World Bank and

IMF to Egypt changed between the time that it began through 2018? In answering

this question, the thesis identifies and analyzes the shifting role of the World Bank

and IMF in Egypt’s economic development during the post-World War II era.

2. In what specific ways did the IMF and World Bank involve themselves with

Egypt’s fiscal policies? In answering this question, the thesis pays particular

attention to fiscal support and the conditionalities related to fiscal policy.

3. What has been the impact of the World Bank and IMF’s involvement in Egypt’s

economic development? Most specifically, the thesis focuses on how successful

this involvement has been in relation to its own terms and objectives, and what

the effects have been more generally.

Methodological Approach

Answering the questions listed above requires a particular set of assumptions and a specific approach to what constitutes effective economic development. Additionally, finding the answer to these questions requires an understanding of the relationship between economic policies, political contexts, and the agency of various social actors

(institutional, governmental, and communal). In prior research, multiple authors have

5 taken various approaches to answering these questions. In Mokhlis Zaki’s overview of the IMF and World Bank’s stabilization efforts, the reader is given the arguments for and against the involvement of these institutions. He also uses the example of Egypt to contextualize those arguments. When speaking on IMF and World Bank involvement in

Egypt, this thesis takes a similar approach that includes what IMF and World Bank stabilization programs look like, what the reasons for those particular programs were, and what the impact of those programs was on Egypt’s economic development throughout the period that they were in place. Zaki judges the success of these programs based upon how

Egypt progressed towards the goals outlined by the IMF and World Bank within these deals. 8 This thesis takes a similar approach when defining Egypt’s economic development as well.

The sources of this thesis can be divided into three sets. The first are general and case-study analyses of the IMF and World Bank and their involvement in Egypt and the

MENA region. It is in this set of sources that one finds the broadest debate about the topic, reflecting a range of research agendas, theoretical approaches, and political commitments. A second set of sources concerns the broader history, political economy, and economic development of Egypt. Some of these sources are specific vis-à-vis a particular time and place, while others cover several decades and multiple sectors of the economy or parts of the country. A final set of sources are primary in nature, and these are the actual World Bank, IMF, Egyptian government, and other official reports, analyses, and indices concerning the Egyptian economy. The thesis draws on all three of

8 Zaki, “IMF-Supported Stabilization Programs and Their Critics,” 1867-1883.

6 these sets of sources. However, it ultimately develops an independent analysis based on the author’s own understanding of and interest in fiscal policy, economic development, and the intersection of the two. Much of the literature on this topic focuses on either the story of Egypt’s economic development or the World Bank and IMF’s involvement in

Egypt. Few works explore both simultaneously as a form of analysis. For reasons of chronological and analytic clarity, this thesis is divided into an introduction, three substantive chapters, and a conclusion.

Thesis Outline

This thesis is comprised of three substantive chapters, in addition to the introduction and conclusion. Chapter 1 focuses on the historical background of Egypt and the MENA region’s political economy prior to the inauguration of a new (and ongoing) relationship with the World Bank and IMF. This provides the needed context to discuss how the

Egyptian regime got into the economic situation that it found itself in when needing to turn to international financial institutions and the transition from a state-centered economic development model to one underpinned by market-centric policies. The chapter is divided into the period of Gamal Nasser’s rule (including the construction of a state- centered economy) and the initial phase of the Anwar Sadat regime during the first half of the 1970s. The chapter concludes by discussing the impetus for the turn toward the

World Bank and IMF, and the nature of that initial relationship.

Chapter 2 analyzes specific loan agreements and programs between the World

Bank and Egypt during the 1970-2010 period. The chapter emphasizes the structural adjustment elements of these loans, the degree to which the programs were successful, and the broader impact of the structural adjustment policies. It focuses on the specifics in

7 the agreements of loans such as the IMF’s loan to Egypt of $327M in 1987 and the World

Bank’s 1991 Structural Adjustment Loan Project in Egypt among many others.

The third and final chapter focuses on the relationship between the World Bank

(and IMF) and Egypt in the aftermath of the January 25 Revolution of 2011. It introduces the political and social environment that prefaced the Revolution of 2011, and then explains the effects of the revolution on the state of the Egyptian government, society, and economy. It then takes a deeper look into how the international financial institutions responded to the Revolution and how their strategy of involvement in Egypt’s fiscal policy shifted in the years following. In conclusion, this last chapter discusses the effectiveness of the institutions’ more recent involvement in Egypt’s economic development and what future involvement (if any) may look like.

8

Chapter 1: Development Under Nasser and Sadat

Mehmet Ali and Defensive Developmentalism

There are multiple examples of policy initiated within the last century that fueled Egypt’s economic downturn that resulted in its need of foreign aid. However, through further examination of Egypt’s modern history, it becomes clear that the inception of its economic distress came well before Gamal Abdel Nasser and Anwar Sadat entered the picture.

Much of present-day Egypt became a province on the beginning in 1517.9 It remained so until World War I. Throughout the intervening four centuries,

Egypt featured various economic, social, and cultural transitions. In the wake of

Napoleon Bonaparte’s 1798 invasion and subsequent occupation of Egypt, an 1801 joint

Ottoman-British military expedition expelled French forces. While all British troops and most Ottoman troops withdrew, an Ottoman contingent under the leadership of Mehmet

Ali remained in Egypt to maintain order and re-establish Ottoman sovereignty. In 1805, the Ottoman sultan appointed Ali governor of Egypt.10 Ali would subsequently enact a series of policies and agreements to both establish Egypt as an autonomous province of the Ottoman Empire and secure hereditary rule for himself and his descendants. Key in this regard were measures to centralize and expand his authority in the face of internal

9 James L. Gelvin, The Modern Middle East: A History (New York: Oxford University Press, 2005), 339.

10 Islam Islami, “Political ,” ILRIA International Review 6, no. 1 (2016): 1-19.

9 instability and external threats. Ali’s attempts would inaugurate a regional trend that historian James L. Gelvin identifies as “defensive developmentalism.” Therein, rules across the Middle East and North Africa (most notable in Egypt, Tunisia, the Ottoman

Empire, and Qajar Empire) sought to dramatically increase their proficiency in managing their territories, populations, and resources.

Defensive developmentalism featured several common features.11 The first was military modernization. Ali and his contemporaries understood that they had a greater ability to project their power internally and externally if they focused on the reformation of their military along the lines of their European counterparts which had significantly developed their military power. Ali therefore borrowed recruitment, disciplinary, organizational, tactical, and technological strategies from European states where armies exhibited more professionalism and effectiveness. The second common feature was that of expanding the state’s sources of revenue. He did this primarily through the cultivation of cash crops, the establishment of monopolies, and the restructuring of tax collection. He also engaged in massive foreign borrowing to supplement the state’s expenditures on the military as well as transportation and communication infrastructure. Central to this entire endeavor was Ali’s inauguration of a state-controlled cotton economy, whereby the government monopoly controlled the planting, harvesting, and sale of cotton among local cultivators for the purposes of exporting it via European agents. He also invested in cotton-related industries such as ginning and spinning. Finally, Ali and his descendants

11 Gelvin, The Modern Middle East, 71-72.

10 increased their ability to and practice of disciplining and coordinating the behavior of the population so they could act in a more advantageous manner to the state. They did so through introduction of standardized legal codes, educational institutions, police forces, and experimentation with centralized economic planning.

Mehmet Ali’s encouragement of the cotton economy facilitated Egypt’s integration into the emerging capitalist world economy. On the one hand, cultivators increasingly turned to production for the market (rather than subsistence) while wage labor proliferated. On the other hand, Egypt’s cotton revenue soon became directly dependent on the price of cotton in the international market place. This was part of an overall integration into and dependence on the world economy. By 1823, over 50 percent of Egypt’s trade was with Europe while less than 15 percent of trade was with the rest of the Ottoman Empire.12

In 1861, southern port blockades in the cut off the supply of

Confederate cotton, decreasing the global supply and driving up cotton prices. Under the assumption prices would maintain at this level, Ali began to borrow heavily from

European bankers to finance various projects, a primary one of which was the Canal

(construction on which began in 1859). However, the end of the US Civil War in 1865 featured the dumping of southern cotton on the international market and the plummeting of cotton prices. This resulted in the collapse of Egyptian revenues. Combined with the international depression of 1873, Egyptian debts reached over 90 million British pounds

12 Gelvin, The Modern Middle East, 75.

11 by 1876.13 That year, the Egyptian government declared bankruptcy and European creditors established the Public Debt Commission (PDC), which took control of over 50 percent of Egyptian revenues for the purpose of debt repayment.14 PDC polices strained the finances of the state and put pressure on the local inhabitants, angering a cross-section of the Egyptian population. This included landowners who found their tax burden suddenly increased, military offers who suffered from government cutbacks, and political elites who had difficulty accepting foreign control. These frustrations found expression in the 1881 revolt led by Colonel Ahmad Urabi.15 The revolt temporarily overthrew the ruler and was poised to result in a number of political, economic, and social shifts which would have severely undercut British and other European imperial interests. It was in this context that the invaded Egypt in 1882, inaugurating a military occupation that would last into the 1950s.16

British occupation of Egypt featured a set of policies and developments which ultimately stifled Egypt’s economic development. One of these policies was the Five

Feddan Law, which left many peasants with smaller plots of land unable to buy seed, putting them in their worst position yet.17 The British also continued to encourage the expansion of cotton cultivation while making sure that Egypt’s textile industry could not

13 Gelvin, The Modern Middle East, 77.

14 Ibid., 91.

15 Ibid., 77.

16 Ibid., 92.

17 Ibid., 99.

12 compete with their own.18 While Egypt’s overall economy featured positive growth from

1876 up to World War I, investment in industry and social policies such as education lagged far behind investment in the parts of the cotton economy that benefited the British

Empire. By the end of World War I (during which time the British recategorized its occupation of Egypt as a protectorate), Egypt had a massively developed transportation and communication infrastructure that underpinned the cotton economy. Yet, it only had

68 publicly financed schools with an education budget that took up no more than one percent of the government’s overall budget.19 Furthermore, British policies took a devastating toll on popular segments of the population (urban and rural workers in particular) at the same time it frustrated the aspirations of landowners, merchants, and middle strata. Despite a three-month popular uprising in 1919, British policies shifted only slightly, granting nominal independence to Egypt in 1923 while continuing to control foreign policy and concessionary arrangements, maintain British troops and bases, and intervene in parliamentary elections, cabinet formation, and legislation.20 The associated discontent was only further exacerbated by the Depression Era, World War II, and the polarization of Egyptian politics around a host of political, economic, and social issues—the 1948 Arab-Israeli war among them.

18 Gelvin, The Modern Middle East, 99.

19 Ibid., 95.

20 Ibid., 197.

13

The Free Officers Coup of 1952 and Gamal Abdel Nasser’s Rise to Power

In 1952, a group of army officers known as the Free Officers Movement staged a bloodless coup. They overthrew the incumbent King Farouk (a decedent of Mehmet Ali) and established themselves as leaders of a newly a declared republic. 21 Following the coup, Colonel Gamal Abdul-Nasser, chairman of the Free Officers, initially assumed a less conspicuous role than General . The latter, a senior ranked army and hero of the 1948 Arab-Israeli War, became the movement’s public leader.

Initially, the Free Officers attempted to assess the political situation, making promises for elections and the removal of martial law.22 However, days after the coup, the Military

High Committee made up of the leaders of the Free Officers announced a six-month hiatus before the previously planned elections to allow the political process to undergo a period of “purification.”23 Six-months later in January 1953, the Military High

Committee announced that Naguib would remain in his position as prime minister for a three-year transitional period. Shortly after this, the Military High Committee was re- established as the Revolutionary Command Council (RCC) and formed a national movement called the “Liberation Rally” of which Nasser was appointed as the secretary

21 Michael Thornhill. “Britain, the United States and the Rise of an Egyptian Leader: The Politics and Diplomacy of Nasser’s Consolidation of Power, 152-4” The English Historical Review 119, no. 483 (2004): 914.

22 Ibid., 898.

23 Ibid.

14 general. Nasser’s new responsibility represented his first substantial public role since the coup.

A key element of RCC policies related to consolidating its control vis-à-vis other local competitors. This included the abolition of political parties. Equally important was the passage of its first major domestic measure, the Agrarian Reform Law of 1952.24 It limited landholdings to 200 feddans (approximately 207 acres), with the right to transfer another 100 to wives and children.25 The owners of the land seized by the government received half the market value of the land at 1951 prices in the form of government bonds. The land was sold in lots of two to five feddans to tenants, and lots of five feddans at most to small farmers. In addition, the small farmers had to buy the lots at a price equal to the compensation paid to the former owner. This policy was intended to destroy the base of elite landowners, lead to some redistribution of rural assets, and encourage rural capitalists to place their funds in industry.

The RCC also attended to labor and educational policies. Initial legislation raised minimum wages, reduced working hours, and created more public sector jobs to reduce .26 However, enforcement of these measures was halfhearted until the early 1960s.27 In an attempt to further reduce unemployment, the RCC instituted a policy

24 Craissati, The Political Economy of Nasserism and Sadatism, 58.

25 Waterbury, The Egypt of Nasser and Sadat, 265.

26 Joel Benin, “Labor, Capital, and the State in Nasserist Egypt,” International Journal of Middle East Studies 21 (1989): 84.

27 Ibid., 75.

15 which gave many university graduates employment opportunities in the government bureaucracy.28 Many uneducated individuals were left out of this equation, and so the government increased its spending on education with the goal of educating all citizens.

These programs were also expanded in the 1960s.

In June 1953, several months after the RCC abolished all political parties, Egypt officially became a republic. Initially, Naguib assumed the role as president and prime minister while Nasser took the position of deputy prime minister and interior minister.

However, over the next six months, a power struggle between Naguib and Nasser ensued that eventually led to Naguib’s resignation in February 1954. Khaled Moheiddin, a left- wing member of the RCC responded to Naguib’s resignation by attempting a counter coup.29 The counter coup attempt resulted in Naguib’s reinstatement as President,

Moheiddin’s exile to Europe, and Nasser’s appointment to prime minister.

Less than a month following the coup attempt, the RCC rescinded all censorship and legalized political parties.30 Simultaneously, railway, tramway, and bus workers participated in government-organized strikes in and other major cities across Egypt.

Their key demand was that the legalization of political parties should not be initiated until the evacuation of British forces had been achieved. Some scholars argue that such developments were part of Nasser’s strategy to prevent a return to parliamentary politics

28 Craissati, The Political Economy of Nasserism and Sadatism, 52.

29 Thornhill, “Britain, the United States and the Rise of an Egyptian Leader,” 915.

30 Ibid.

16 by making the likelihood of widespread disorder seem inevitable.31 Accordingly, such protests represented the first time that organized labor in Egypt had been deliberately used for political purposes. Mass demonstrations were also staged by the political parties calling for an immediate return to parliamentary life.

Days later, representatives from the presented to the RCC a resolution declaring their opposition to the reestablishment of political parties. The demonstrations were eventually used to justify a reassertion of the RCC’s control.32 It issued a statement at the end of March 1954 announcing the cancellation of elections, the banning of political parties, and the reinstatement of censorship. A national advisory council was also established to represent organizations and districts. In July 1954, two years after the Free Officers coup, Nasser and British Minister of War Anthony Head agreed to terms for a twenty-month period to withdraw British forces from Egypt. They officially signed the agreement in October of that year.

It was shortly after that the attempted to assassinate Nasser, from which he emerged unscathed.33 The incident highlighted the divergent views for the future of Egypt between Nasser (and the RCC) and the Muslim Brotherhood—a prominent political opposition and religious charity group.34 Once the assassination

31 Thornhill, “Britain, the United States and the Rise of an Egyptian Leader,” 914.

32 Ibid., 915

33 Ibid., 919.

34 Ibid., 920.

17 attempt was linked to the Muslim Brotherhood, the government arrested four of its members. Nasser used the assassination attempt to bolster his legitimacy and consolidate his power. He used this enhanced support to remove Naguib from office in November

1954 and crack down on the Muslim Brotherhood who he deemed as a threat to the republic.35 He led Egypt without serious rivalry, and assumed the still-vacant presidency in June 1956, after the last British troops left Egyptian soil.

The Presidency of Gamal Abdel Nasser

After driving out the last of the foreign powers from Egypt, Nasser’s desire was to establish a state-managed economy free from dependence on the vagaries of the world economy.36 This policy developed overtime. The RCC initially sought a public-private partnership model for industrial transformation. Though it did target foreign-owned enterprises that were central to the economy. In 1956, Nasser nationalized the Suez

Canal. However, the canal was at the time operated by the Company which was primarily British and French owned. In response, Britain and began to work together with to create a joint plan in which they would invade Egypt and overthrow Nasser.37 This plan came to life in October 1956 when Israeli forces invaded

Egypt, followed shortly by Britain and France. However, both the British and French were pressured a week later to accept a ceasefire due to the multiple factors including the

35 Thornhill, “Britain, the United States and the Rise of an Egyptian Leader,” 915-920.

36 Craissati, The Political Economy of Nasserism and Sadatism, 56.

37 Geoffery Marston. “Armed Intervention in the 1956 Suez Canal Crisis: The Legal Advice Tendered to the British Government” The International and Comparative Law Quarterly 37, no. 4 (1998): 797.

18 possibility that other powers such as the U.S.S.R. would assist Nasser and turn the conflict into a much bigger issue as a result. In December 1956, the UN evacuated British and French troops and in March 1957, Israeli forces withdrew from Egypt as well resulting in a major victory for Nasser.

Overtime the regime grew increasingly less tolerant of the private sector’s power over government. A turning point in this policy shift was the 1957 establishment of the

National Planning Commission and the Economic Organization.38 Such policies eventually expanded to include the nationalization of all of Egypt’s privately-owned banks and many commercial businesses.39 Eventually, Nasser’s effort to nationalize the pillars of the private sector expanded to also include industrial enterprises and insurance companies.40 While he was successful in carrying out his nationalization efforts, the revenue gained from those efforts was not nearly enough to make up for the expansion of public sector employment and the social policies initiated. To gain additional sources of domestic revenue, Nasser looked toward further restructuring agriculture and industry.

In 1961, the RCC’s further developed its 1952 Agrarian Reform Law. It reduced the land-holding ceiling from 200 feddans to 100 feddans, increasing the availability of land to be purchased by peasants.41 By enabling more of the population to own land,

38 Benin, “Labor, Capital, and the State in Nasser’s Egypt,” 79.

39 Craissati, The Political Economy of Nasserism and Sadatism, 69.

40 Ibid., 70.

41 Waterbury, The Egypt of Nasser and Sadat, 74.

19

Nasser encouraged further investment in industry by former landowners, increased purchasing power of the general population, and allowed the state to collect more tax revenue. Nasser also engaged in multiple economic projects, one of which was the construction of the Aswan High Dam. The Aswan High Damn was built primarily to make irrigation more available to Egyptian farmers so that more crops were able to be grown and harvested. After the United States and made the decision to not finance the construction, Nasser looked elsewhere for the needed capital.42

Central to Nasser’s construction of a state-managed economy was the articulation of a new social contract, which entailed providing social services to the Egyptian people in return for their political support (or rather, their political acquiescence). These included health care, food and clothing subsides, education, rent control, and low-cost housing.43

The social contract was well received by the Egyptian population as many now had access to services that were previously unavailable to them during the British occupation.

With regard to health services, Nasser’s goal was to provide basic healthcare at a minimum to every Egyptian. To accomplish this, he increased funding for the Ministry of

Public Health and inaugurated a comprehensive state-managed health care system.

Regarding education reform, one of Nasser’s objectives was to increase the number of schools in Egypt. Between 1955 and 1964, approximately 4,000 primary schools were

42 Craissati, The Political Economy of Nasserism and Sadatism, 63.

43 Carrie Wickham, Mobilizing Islam: Religion, Activism, and Political Change in Egypt (New York: Columbia University Press, 2002), 23.

20 constructed, most of them in urban centers.44 Nasser also increased funding to secondary schools and universities which gave individuals from the popular classes greater opportunities to matriculate into university, with his goal of them obtaining a more lucrative job in the public sectors.

As a part of his nationalist and protectionist approach, Nasser supported and encouraged the policy of import substitution industrialization (ISI): an economic approach that substitutes foreign imports with domestic products. While it sounded like a good idea, Nasser’s ISI policies did not produce many of the expected results. Without a viable capital goods industry, Egypt had to import machinery and technology resulting in an increase in dependence on foreign currency despite his attempt to move away from an import focused economy. In Egypt’s first Five Year Plan (1960-1965) for economic development, ISI played a large role as one of the main policy initiatives.45 However, exports fared poorly during this time. In 1966, Egypt’s balance of payments deficit reached 142.2 million Egyptian pounds instead of a planned surplus of 40 million

Egyptian pounds.46 Additionally, 25 percent of the entire plan and 40 percent of the total investment for the first Five Year Plan were dependent on foreign investment, deeming it counterproductive to Nasser’s protectionist development strategies.

44 Keith Wheelock, Nasser’s New Egypt: A Critical Analysis (New York: Frederick A Praeger Inc Publisher, 1960), 112.

45 Craissati, The Political Economy of Nasserism and Sadatism, 91-92.

46 Ibid., 92.

21

Foreign aid from the U.S.S.R., United States, and other countries was used to help fund not just Nasser’s industrial initiatives, but also many of his social provisions.

Between 1958 and 1965, the U.S.S.R. supplied Egypt with $842 million in long-term, low-interest loans. From 1962-1966 and 1968-1972, the U.S.S.R. provided Egypt with loans worth $419 million and $319 million, respectively. These accounted for one third of the total foreign loans granted to the Egyptian government during those time periods.47

Almost all of the Soviet capital outflows to Egypt were for specific projects, including the Aswan High Dam, a steel mill, an electric power station, chemical and pharmaceutical plants, oil refineries, and cotton spinning mills. The United States was also a major source of funding for Egypt during this time period. Between 1962 and

1966, the United States provided Egypt with $466.5 million in Special Drawing Rights

(SDRs).48 This was the largest amount given to Egypt by a single country during this time. However, the United States heavily decreased its funding after political conflicts with Egypt in 1966.

The regime also used international funding to help expand the military. The military’s budget increased drastically throughout Nasser’s rule. In 1958, Nasser spent

$211 million on defense. By 1968, that figure increased to $507 million. As a percent of

GDP, military expenditures rose from 5.5 percent in 1962 to 10 percent after 1967, before

47 Nazem Abdalla, “The Role of Foreign Capital in Egypt’s Economic Development: 1960-1972” International Journal of Middle East Studies 14, no. 1 (1982): 87.

48 Ibid., 89.

22 reaching 20 percent of GDP in 1973.49 An important factor in the increase of defense spending within Egypt throughout this time period was the Six-Day War.

The Six-Day War

The Six-Day War is known as the third Arab-Israeli war. It took place 5-10 June 1967.50

There were multiple factors that took place in the months leading up to the war. On 5

June, Israel initiated a pre-emptive airstrike against the Egyptian Air Force. The

Egyptians were caught by surprise and nearly the entire force was destroyed with few

Israeli losses. Simultaneously, a ground offensive was launched into the and the Sinai. Nasser eventually ordered the evacuation of Egyptian troops from the Sinai and received heavy losses as Israeli forces pursued the as they evacuated. A ceasefire was signed on 11 June and the result was the occupation of Gaza Strip and the

Sinai Peninsula by the Israelis.51 In addition, the Egyptian, Syrian, and Jordanian militaries were heavily crippled. This put Egypt in the position to need to invest even more heavily than before into its military.

The End and Legacies of Nasser’s Regime

Following the defeat of the Six-Day War, much of Nasser’s work in building national independence and regional morale was lost. The U.S.S.R. undercut Egypt’s sovereignty,

49 Adeed Dawisha, Egypt in the : The Elements of Foreign Policy (New York: Halsted Press, 1976), 87.

50 Warren Bass, A Surprise Out of Zion? (New York: RAND Corporation, 2015), 15-26.

51 Imad Harb, “The Egyptian Military in Politics: Disengagement or Accommodation?,” Middle East Journal 57, no. 2 (2003): 281.

23 taking over what was left of Egypt’s air defense and even intervening politically with the

Egyptians in the years following the war. The socio-economic transformation Nasser worked toward was to many delegitimized, as the repeated setbacks of the development strategy combined with the military loss to Israel brought forward all of the contradictions inherent within this transformation.52 Nasser passed away from a heart- attack in September 1970.

When analyzing the legacies of Nasser’s presidency, multiple parallels can be drawn between Nasserism and defensive developmentalism. Both strategies were imitated to strengthen the state of Egypt in the face of both internal and external threats.

While the nature of threats was different under Mehmet Ali than under Gamal Abdel

Nasser, the bases were similar as both strategies were implemented in the sense of combatting the global shift of power West. However, Nasserism was initiated after the ousting of imperialist powers from Egypt which early-on, more heavily emphasized the anti-imperialist component of Nasserism. In terms of specific policy, military reform played a significant role in both Nasserism and defensive developmentalism. As detailed earlier, military spending greatly increased throughout Nasser’s presidency, but this was done mainly to prepare themselves against Western and Israeli powers whereas threats within the Ottoman Empire were still a main focus during the military reform of defensive developmentalism. Another parallel between the two strategies was the initiative to expand their sources of revenue in order to afford other provisions. While

52 Craissati, The Political Economy of Nasserism and Sadatism, 118.

24 these provisions were primarily military-related during the time of defensive developmentalism, Nasserism brought about many social provisions that needed funding as well. Nasser’s incorporation of costly social provisions coupled with an early lack of success to garner private investment both contributed heavily to Nasserism’s lasting impact on Egypt’s economy.

Another parallel between Nasserism and defensive developmentalism is that they both had similar negative impacts on Egypt’s economic position in their aftermaths.

During defensive developmentalism, Mehmet Ali’s defensive developmentalism made

Egypt’s economy heavily reliant on global commodity prices, specifically cotton.

Additionally, as stated prior, Ali borrowed heavily from Europe to finance improvements on the basis of high cotton prices, putting Egypt in an even worse economic position than it would’ve been once revenues collapsed in 1865. Bankruptcy was ultimately the result of Ali’s defensive developmentalism. Nasser’s goal was for Egypt to be economically self-sustainable. ISI initiatives were meant to keep Egypt disconnected from the global economy while agrarian reform was meant to encourage private investment into Egypt’s industry. However, Nasser was unsuccessful in both efforts as he struggled to gather private investment, especially in the early stages of ISI, leading to a balance of payments deficit after ISI implementation. Egypt incurred a total debt balance of $2,186.5 million in 1972 which equaled approximately 25 percent of the country’s total GNP, and by

1973, Egypt’s debt service ratio of 34 percent became the largest in the world.53 While

53 Abdalla, “The Role of Foreign Capital in Egypt’s Economic Development,” 95.

25 this foreign capital inflow gave way to Egypt’s economic industrialization, the economic situation of Egypt required an immediate assessment by its new leader, Anwar Sadat.

Anwar Sadat’s Power Struggle

Anwar Sadat succeeded Nasser.54 Sadat had been a member of the Free Officers, playing a key role in the 1952 coup, and was subsequently a leading member of the RCC. When

Sadat ascended the presidency in October 1970, he immediately took various efforts to assess the impact of Nasser’s economic policies. Sadat subsequently restructured the economy in a manner consistent with unraveling the state-centered structure.55 He encouraged participation of local and foreign capital. In December 1970, he halted any further land seizure, and ordered that all land confiscated over the prior ten years be returned to its previous owners. Sadat also favored positive relations with the United

States and a concomitant flow of foreign aid and direct investment. It was in this context that he opted for negotiations and eventual peace with Israel. Such policies, whether in the economic or foreign policy realms were certain to solicit opposition from both within the regime and within what was left of the independent left. In this context, Sadat turned to cultivating a new relationship with the Muslim Brotherhood as a counter to his non- regime opponents.56

54 Peter Johnson, “Egypt Under Sadat,” Middle East Research and Information Project, Inc. 11 (1972): 3.

55 Ibid., 4.

56 Ibid.

26

With no political base of his own and a lack of charisma in comparison to Nasser,

Sadat found it difficult to govern with Nasser’s associates still holding power. These leaders included, but were not limited to Minister of War Muhammad Fawzi, Minister of the Interior Sa‘d Jum‘a, Minister for Presidential Affairs Sami Sharaf, and ASU President

Ali Sabri.57 In May 1971, Sadat initiated what is known as his “Corrective Revolution” in which he used military officers loyal to him to oust the aforementioned leaders and their associates from their posts.58 The government officials were ultimately tried and imprisoned for crimes including treason and conspiracy to assassinate Sadat. These efforts to purge Nasserist elements from the military and civilian bureaucracy reverberated across various other political institutions. By the end of the “Corrective

Revolution,” “Nasserism was liquidated as a governmental, political, and police organization.”59

The October War of 1973 and Sadat’s

Sadat was convinced that military force was the only way to get Israel to negotiate on terms more favorable to Arab countries, and specifically Egypt. In October 1973, Egypt and initiated the fourth Arab-Israeli war which lasted from 6 October to 26

October.60 Egypt and Syria attacked Israel on two fronts, Egypt through the Suez Canal

57 Johnson, “Egypt Under Sadat,” 6.

58 Raymond Baker, “Sadat’s Open Door: Opposition from Within,” Social Problems 28, no. 4 (1981): 378.

59 Craissati, The Political Economy of Nasserism and Sadatism, 120.

60 Encyclopedia Britannica, “The Fourth Arab-Israeli Conflict.”

27 and Syria through the . The intensity of the Egyptian and Syrian attack quickly began to exhaust Israel’s reserve stocks of munitions. The U.S.S.R. delivered supplies to Egyptian and Syrian forces, countered by a US emergency supply line to

Israel. However, oil-producing Arab states also imposed a costly oil embargo and various

US allies refused to facilitate the arms shipments to Israel. After Egypt’s early success in passing through the Suez Canal, Israeli forces successfully disabled a portion of Egypt’s air defenses which allowed Israeli forces to cross the Suez Canal and surround the

Egyptian Third Army. On 22 October 1973, the Security Council called for an immediate end to the fighting. However, hostilities continued for several days afterward. Israel and Egypt signed a cease-fire in November 1973, and later signed a more comprehensive agreement in January 1974. The accords included the withdrawal of

Israeli forces into the Sinai while Egypt was forced to reduce the size of its forces on the east bank of the canal. In May 1974, Israel and Syria signed a cease-fire agreement that included the separation of their forces by a UN buffer zone and the exchange of prisoners of war. By June 1974, the oil embargo was lifted. The result of the October War of 1973 was seen as a symbolic victory for Egypt that served as a final blow to Nasserism, paving the way for future Sadatist policies.61

In place of Nasser’s state-managed and closed economy, Sadat proposed a system in his 1974 “October Paper” that was centered on opening up the economy to private investment both domestic and foreign, and establishing an approach that relies on market

61 Craissati, The Political Economy of Nasserism and Sadatism, 120.

28 mechanisms to solve economic problems. Sadat’s policy of opening up the Egyptian economy was referred to as Infitah, loosely defined as “Open Door” policy.62 Infitah unraveled much of the state-centric policies, provided major tax exemptions for foreign companies, and lifted the policy that required foreign companies to be partly Egyptian- owned. This policy began attracting capital from abroad. However, it was not in the form or quantity that Sadat needed. Most of the capital invested into Egypt between 1973 and

1975 went into non-productive sectors such as housing and tourism facilities.63

Furthermore, exports as a percent of GDP had by 1975 vastly decreased since the commencement of Sadat’s Infitah. The new policies also encouraged the idea of

“consumption liberalization” without the alleviation of the strain on Egyptian families.

The cost of living rose 20 percent throughout the duration of Sadat’s policies.

By the end of 1975, Sadat faced a $2.5 billion goods and services deficit with foreign debt exceeding GDP.64 Sadat therefore looked to international financial institutions such as the World Bank and International Monetary Fund (IMF). However, both institutions’ loans had structural adjustment conditionalities. These agreements included, among other things, the liberalization of both exchange rates and import controls, the reduction of subsidies, and the loosening of labor policies.65 In an effort to

62 Marvin Weinbaum, “Egypt’s ‘Infitah’ and the Politics of US Economic Assistance,” Middle Eastern Studies 21, no. 2 (1985): 206.

63 Craissati, The Political Economy of Nasserism and Sadatism, 157.

64 Weinbaum, “Egypt’s ‘Infitah’ and the Politics of US Economic Assistance,” 215.

65 Simon Bromley and Ray Bush, “Adjustment in Egypt? The Political Economy of Reform,” Review of African Political Economy 21, no. 60 (1994): 203-205.

29 secure, Sadat opted to accept IMF stipulations. He cut subsidies on cooking gas, rice, and sugar, as the cost of these subsidies rose from $175 million in 1972 to $1.7 billion in

1976. Sadat and his cabinet hoped to generate from this, savings of approximately $600 million which would keep the deficit from reaching a projected $3.25 billion by the end of 1977.66

Sadat’s decision to appease IMF demands to cut subsidies instead of military spending, debt servicing, or investment further frustrated non-elite Egyptians as it was clear that the government was focused on getting Egypt out of its economic situation regardless of social implications and the impact it had on its citizens. In January 1977, thousands rioted across Egyptian cities in reaction to the subsidy reductions. These were later referred to as the “bread riots.”67 They prompted Sadat to utilize the military to regain control by force. Once the army had successfully pacified the crowds, an estimated eighty people had been killed and the relationship between Sadat and the people of Egypt continued to take a turn for the worst. The Consultative Group—an association of lenders that predominantly consisted of the United States, Britain, France, West Germany, Italy,

Japan, the IMF, and the World Bank—began to meet annually with the Egyptian regime to discuss the policies and priorities Egypt needed to initiate before any pledges for

66 Jason Brownlee, “Peace Before Freedom: Diplomacy and Repression in Sadat’s Egypt” Political Science Quarterly, 126, no. 4 (2011-12): 651.

67 Flavia Lorenzon, “The Political Economy of Food Subsidies in Egypt,” The Public Sphere (2016): 115- 117.

30 assistance were made by the lenders.68 These meetings became the mechanism through which Sadat’s Infitah policies were forced upon the country.

As a result of Sadat’s new policies, the regime’s social base shifted from the recently expanded middle class under Nasser’s rule to the individuals within the upper class that held strong financial powers. This new base of support helped to lead Egypt from a state-led industrialization-oriented development strategy to a non-industrial and non-productive economic strategy based on private initiative and extraversion of the main sources of revenue. By 1974, a group of public sector leaders and businessmen known as the “munfatihun” advocated for Infitah and pushed for an increasing liberalization after its adoption.69 Two main groups in support of these policies can be identified.70 The first was the state bourgeoisie, which consisted of public sector leaders (such as ex-ministers, and former presidents, officer, or members of the boards of directors of the Nasserite public sector companies and establishments). These individuals had accumulated capital through abuses of public office and engaged in private business investments before and after the end of their career closely tying many of them with foreign enterprises. The second group was the capitalist bourgeoise which consisted of private businessmen, entrepreneurs, contractors, speculators, profiteers, and smugglers who flourished under

Infitah by penetrating state institutions and entering into joint ventures with foreign capital. These “munfatihun” gathered funds by acting as brokers for private domestic and

68 Craissati, The Political Economy of Nasserism and Sadatism, 147.

69 Ibid., 137.

70 Ibid., 3, 20, 43.

31 foreign capital and by pushing and servicing the projects of their client networks through their positions in the public sector.

Various markets and sectors across Egypt’s economy began to shift as leading officials within the public sector continued to take advantage of Sadat’s new economic policies. For example, investments in construction after Infitah rose from 391 million

Egyptian pounds in 1974 to 654 million Egyptian pounds in 1975, with contractors making 275 million Egyptian pounds in profits by the end of 1975.71 In June 1975, substantial amendments were made to the Agrarian Reform Law, erasing many of its former achievements.72 First, the rent of leased agricultural land was raised by 25 percent.

Second, the landowners were authorized to change the rent from cash to kind, a policy not seen since before 1952. Third, landowners were given the right to evict tenants if the rent was not paid within two months after the end of the agricultural year.73 Lastly, village committees that would adjudicate grievances between tenants and landowners were abolished. As a result of these amendments, peasants were brought back to a semi- feudal era. By 1979, profits within the agricultural sector were evaluated to be at 350 million Egyptian pounds.74 The “munfatihun” were also active in lucrative industrial projects such as food processing and the textile industries.75 They secured profitable

71 Craissati, The Political Economy of Nasserism and Sadatism, 139.

72 Ibid., 164.

73 Ibid., 164.

74 Ibid., 139.

75 Ibid.

32 contracts from the government by receiving cotton at subsidized prices and in many cases fraudulently selling them back on the black market.

This emerging structure created a new capitalist class that was only interested in the largest profits in the shortest time. The result of this mentality was to foster alliances with foreign capital. However, in all of these cases, the “munfatihun” were in a position of weakness compared to foreign capital and could not afford to compete with it.76 In

April 1978, the Ministry of Commerce recorded as many as 3,600 foreign companies operating in Egypt through agents.77 Additionally, Egyptian capital was in an inferior position relative to foreign capital, as average wages for foreigners in Infitah projects were seven to ten times higher than the average wage of Egyptians in the same projects.78

The greatest threat to Egypt’s economic autonomy was the role that the World

Bank, IMF, Consultative Group, and the United States played. In 1975, an advisor of the

World Bank recommended to Egypt a development strategy that entailed support for a totally liberalized economy, encouraging further investment in extraverted sectors such as tourism.79 Such recommendations also included Egypt doing away with the uncertainty of war as such sectors could only flourish in a peaceful situation. These recommendations

76 Craissati, The Political Economy of Nasserism and Sadatism, 146.

77 Ibid.

78 Ibid., 147.

79 Ibid.

33 were solidified further by the IMF and Consultative Group which gave Egypt no choice but to accept stabilization measures as conditions for receipt of monetary aid.

The United States played a large role in Egypt’s Infitah policy. From 1974 to

1977, US food subsidies and bilateral aid to Egypt grew from $250 million to over $1 billion annually. 80 By 1981, a total of $6.6 billion in US aid had gone to Egypt in economic assistance since 1975, apart from another $2 billion in military assistance.81 US involvement, especially militarily, was partly a factor of Egypt’s disengagement from affiliation with the U.S.S.R. US interests in Egypt were primarily of a political nature at first, sponsoring an Egyptian-Israeli peace agreement and later using Egypt’s geopolitical location as a staging-ground for the US Rapid Deployment Force (RDF).82 However, US economic assistance was involved in nearly every key sector of the Egyptian economy.

As a result, US officials became closely involved in Egyptian government policies, providing operating budgets for many Egyptian ministries and dictating the programming and priorities of many development projects. US economic aid was ultimately meant to buy social peace and maintain the legitimacy of the Sadatist regime that America was able to heavily benefit from.

Along with Egypt’s various economic sectors, its military sector also experienced changes since Nasser’s rule. One of the primary shifts in Egypt’s military during Sadat’s

80 Brownlee, “Peace Before Freedom: Diplomacy and Repression in Sadat’s Egypt,” 649.

81 Craissati, The Political Economy of Nasserism and Sadatism, 147.

82 Ibid., 148.

34 regime was its role and involvement in politics. Under Nasser, individuals with exclusively military training made up 20.9 percent of the total contingent of the ministerial elite. That same group made up only 5.3 percent under Sadat.83 After 1974, the military-political career discontinued its prior channeling of new faces to the top.

Instead, the portion of engineers and agronomists in the cabinet rose from 21.7 percent to

32 percent during Sadat’s rule.84 At the same time, the portion of ministers trained in economics or business increased from 9.3 percent to 21.3 percent.85

Investment in military development nevertheless continued under Sadat. The 1973

October War exhibited a much more robust that proved the Israeli army to be penetrable. Furthermore, it resulted in a cease fire with the compliment of a buffer zone (as mentioned earlier). Therefore, there was no immediate foreign threat that required rapid development of the military. However, domestically, the military was increasingly being called upon to handle various protests and riots that arose throughout

Egypt as a result of Sadat’s Infitah policies. Additionally, potential coups and rumored assassination attempts caused Sadat to continue to rely on his military for regime security and legitimacy.86

83 Craissati, The Political Economy of Nasserism and Sadatism, 144.

84 Ibid., 103, 145.

85 Ibid., 145.

86 Harb, “The Egyptian Military in Politics: Disengagement or Accommodation?,” 287.

35

The Effects of Sadatism

During the 1970s, economic growth in Egypt reached impressive heights with GNP tripling from 3.01 billion Egyptian pounds in 1970 to 9.50 billion Egyptian pounds in

1982.87 However, this was not translated into a change in the developmental structure of the country due to the unproductive and extraverted sectors of the economy that led the growth—at the detriment of agriculture and local industry. In agriculture, selective price controls, low government priority, rich peasant dominance of co-operatives, corrupt allocation of resources, and evasion of crop quotas led the agricultural sector’s share in total investment to fall from 25 percent in the mid-1960s to 7 percent in 1975.88 Under

Sadat, food subsidies rose from 11 million Egyptian pounds in 1972 to 329 million

Egyptian pounds in 1974 as a part of both an effort to buy social peace and the US strategy of maintaining a leading US position in the international agricultural market.89

The discrepancy between the subsidized prices and the actual cost of the imported commodities weighed heavily on the state’s budget. The boom of higher priced crops such as fruit and vegetables were not met with the agricultural and fiscal strategies that could allow them to offset Egypt’s declining agriculture. Additionally, the exporting of cotton, which had such strategies, stagnated and even declined as it was no longer the focus of the government to be a substantial exporter of cotton. Furthermore, the regime was unwilling to control and limit the corruption and domination of the rich peasants and

87 Craissati, The Political Economy of Nasserism and Sadatism, 151

88 Ibid.

89 Ibid., 152.

36 agricultural capitalists that its policies created. While agriculture remained as one of the primary sources of employment for Egyptians in the 1970s, the average income of the rural population was only 60 percent of that of the urban populations. This resulted in an exodus from the countryside and between 1975 and 1978, 15 percent of its workforce was lost.90

Egypt’s industrial growth was also stifled by the impact of Infitah policies. One example is Law No. 111 of 1975, which abolished public organizations as the center of coordination and control within the public sector, giving the power and autonomy instead to the boards of directors of companies.91 This led to abuses concerning salaries and personnel recruitment and also left these companies without protection from the stipulations surrounding private domestic and foreign capital. Another example is a set of laws concerning foreign trade, foreign exchange, and free zones which included in them a tariff structure the had devastating effects on local industry.92 These laws also began to develop an import complex among Egyptians where purchasing foreign goods was seen as a badge of sophistication contrary to the prior bias in favor of local industry. In addition to all of this, local Egyptian industry lost an important buyer in the East

European and Soviet markets after the elimination of trade agreements with the Eastern

Bloc.

90 Craissati, The Political Economy of Nasserism and Sadatism, 153.

91 Ibid., 154.

92 Ibid., 155.

37

The Assassination of Anwar Sadat and the Rise of Hosni Mubarak

In an effort to rid Egypt of its economic distress and shore up a new social based for his regime, Sadat’s Infitah created an Egypt reliant on foreign aid and investment. The IMF,

World Bank, and Western powers such as the United States had a newfound power and involvement in Egypt’s economic development similar to that of Britain before Nasser came to power in 1952. The Egyptian population understood this and often took to the streets in various incidents to protest what was happening. Social discord continued to grow as well as the animosity of Egyptian citizens toward Sadat and his regime. On 6

October 1981, Sadat partook in a parade held in Cairo to honor the eighth anniversary of

Egypt’s crossing of the Suez Canal during the fourth Arab-Israeli war. It was then, that a plotted assassination attempt led by Lieutenant Khalid Islambouli took place—killing

Sadat and ten others.93 The assassination of Sadat was followed by the appointment of

Hosni Mubarak as .

Under Mubarak, Egypt continued to be heavily impacted by its relationship with the IMF and World Bank. Egypt was stuck in an economic situation that required foreign aid and assistance. Yet it lacked the liquidity to effectively pay these loans back as it took

Egypt over ten years to make substantial progress on paying off SALs that it received from the IMF in 1977 and 1978.94 Egypt began to become caught up in a cycle of debt as a result of its initial turn to foreign aid. However, this cycle of debt was only half of the

93 Ephraim Kahana, “The Assassination of Anwar al-Sadat: An Intelligence Failure,” International Journal of Intelligence and Counter Intelligence 27, no. 1 (2014): 179.

94 Mokhlis, “IMF-Supported Stabilization Programs and their Critics,” 1868.

38 story. Each SAL given to Egypt had its own set of structural reforms that directed many of the government’s major economic decisions moving forward.

39

Chapter 2: IMF and World Bank Fiscal Policy Involvement with Egypt 1978-2011

The Foreign Aid Institutions

In July 1944, the International Monetary and Financial Conference of the United and

Associated Nations, also known as the Bretton Woods Conference, was held with 44 participating countries.95 In this meeting, attendees issued the final statement and signed the founding agreements of the International Monetary Fund (IMF) and International

Bank for Reconstruction and Development, later known as the World Bank. The agreements for these institutions went into effect in December 1945. After the March

1946 founding assemblies for each, the World Bank opened its doors in June 1946 and the IMF in March 1947.

While their inception took place at the same conference, the IMF and World Bank were established with distinctly different purposes. The IMF’s focus was on promoting

“international monetary cooperation” to assist in the dismantling of exchange controls on trade developed as a result of factors such as the Great Depression and World War II.96

These controls were to be replaced with a “fixed but adjustable” system that set exchange values for all currencies in terms of gold. Since the United States held most of the gold at this time, currencies were valued with respect to the U.S. dollar. The financial resources

95 Kazuhik Yago, Yoshio Asai, and Masanao Itoh, History of the IMF: Organization, Policy, and Market, (Japan: The University of Tokyo, 2015), vi.

96 James Burnham, “The IMF and World Bank: Time to Merge,” The Washington Quarterly 22, no. 2 (1999): 102.

40 of the IMF were ordered to be used for countries with temporary balance of payment troubles. The IMF essentially operated in its early years as a central bank for the central banks of member countries, providing stand-by loans and extended fund-facilities to countries in need.

The World Bank’s mission was centered upon lending to developing countries for infrastructure and investment projects such as railways, power plants, irrigation systems, and so forth in order to increase the GNP of those countries as well as their per capita income. 97 In an effort to differentiate the World Bank’s goals from those of the IMF, the

World Bank’s original charter contained specific provisions that gave it a focus on projects which were intended to “increase production and stimulate economic growth.”

However, the World Bank’s 1979 inception of the Structural Adjustment Loan (SAL) began to blur the lines between its responsibilities and those of the IMF.98 These loans would provide financing to countries over a period of three to five years in return for reforms in trade protection and price incentives for efficient resource use. The intent of the SAL as outlined by the World Bank was to serve as a preventative instrument so that the “current account deficits of many developing countries [did] not become so large as to jeopardize seriously the implementation of current investment programs.” The focus of

SALs became further developed into a dual rationale that included maintaining growth and facilitating balance of payments adjustment, very similar to the mandates of the IMF.

97 Christopher Lacovara, “IMF & IBRD Crossroads or Cross-purposes,” Harvard International Review 7, no. 1 (1984): 38.

98 Easterly, “What Did Structural Adjustment Adjust?,” 2.

41

Throughout the period between 1970-2010, both the IMF and World Bank issued multiple SALs, Stand-By Arrangements, and Extended Fund Facility agreements to

Egypt, all of which had various implications and effects on Egypt’s economy.99

After the death of Sadat, Hosni Mubarak, a former high-ranking officer of the

Egyptian Air Force assumed the presidency of Egypt.100 Mubarak continued with the reform process introduced by Sadat and his Infitah policies. He did so however, with

“great caution and misgivings” as he did not want to repeat some of the same mistakes made during Sadat’s regime. Nonetheless, over ten different agreements with the IMF and World Bank took place throughout Mubarak’s reign, ranging from agricultural to financial sector loans. All of them had some component of adjustment towards Egypt’s fiscal policy.101 This chapter will discuss the provisions of these specific loans and the effects on the Egyptian economy of implementing the recommended fiscal adjustments.

While the details of the World Bank’s loans with Egypt are of public record, the loan contracts made between the IMF and Egypt before 2011 are not. This unfortunately does not allow the IMF’s specific loan conditions to be explored with a great deal of depth. However, the IMF did publish various appraisal reports that outlined the problems surrounding Egypt’s economy and what needed to be done in a broad sense to fix them.

99 “Egypt: Transactions with the Fund from May 01, 1984 to October 31, 2018,” International Monetary Fund, 31 October 2018,

100 Harb, “The Egyptian Military in Politics: Disengagement or Accommodation?” 284.

101 “The Arab Republic of Egypt, Project & Operations,” The World Bank, 2018; “Egypt: Transactions with the Fund from May 01, 1984 to October 31, 2018,” International Monetary Fund, 31 October 2018.

42

The amount of the IMF loan Egypt drew from the total loan credit also gives insight as to how well Egypt met all of the policy conditions of that particular loan. Both the IMF and

World Bank identified very similar problems in the business sector. Problems categorized under “internal factors” by the IMF were: a lack of effective feasibility studies; unbalanced financial structure (very high debt/equity ratio); excessively high capital costs of some projects; inexperienced entrepreneurs; and the wrong choice of production technology. Problems in operations within Egypt’s business sector included: lack of managerial efficiency; high percentage of losses and waste; lack of quality control resulting in accumulation of stocks and consequently, problems of liquidity; very high labor costs; and inefficient marketing. Problems in Egypt’s banking system identified by the IMF were: a lack of follow-up on projects; the untying of the withdrawal from the loans to the percentage execution of the projects; a lack of profound study of loan requests; allowing borrowers more funds than the borrowing limits; and lack of efficient investigation of the borrowers and their credit worthiness.102 Problems in Egypt’s general economic policies as identified by the IMF were centered in pricing policy; monetary policy; fiscal policy; foreign exchange; and Bureaucracy. Lastly, the IMF identified external factors at play in regard to the problems of Egypt’s business sector which included: a worldwide recession that prevailed after 1980-1981; the freezing of Egypt-

Arab relations after the peace treaty of 1979; and the growth of protectionism in the industrial countries which led to a reduction in the demand for commodities produced in

102 Said El-Naggar, and Structural Adjustment in the Arab Countries (International Monetary Fund, 1989), 141-182.

43 the developing countries including Egypt. A common factor pertaining to Egypt’s economic development mentioned constantly by the IMF was also that an increasing role of the private sector was needed and that privatization in the wider sense, while an important part of reform, should be coupled with or even preceded by appropriate fiscal, monetary, pricing, foreign exchange, education, and employment policies as well as by other social and economic policies. While detail into the IMF’s conditional loan agreements is not provided, one can gather that their policies had a direct relation to the aforementioned problems that Egypt was facing at the time.

The IMF and Egypt

The first structural adjustment IMF agreement with Egypt was made in 1977 for a one- year stand-by arrangement during which Egypt utilized SDR 105 million out of a total of

SDR 125 million.103 This was followed in 1978 with an Extended Fund Facility arrangement that allowed Egypt to draw up to SDR 600 million, however as a result a failure in policy implementation, Egypt only drew 75,000 (12.5 percent) by the time the arrangement expired in 1981.104 After receiving payments for a substantial amount of its loan, the IMF agreed to a stand-by loan arrangement with Egypt totaling SDR 250 million, 116 million of which was drawn as a result of another failure to meet the agreed upon conditions.105 While the earlier attempts at economic liberalization were movements

103 Zaki, “IMF-Supported Stabilization Programs and their Critics,” 1868.

104 Zaki, “IMF-Supported Stabilization Programs and their Critics,” 1868.

105 “Egypt: Transactions with the Fund from May 01, 1984 to October 31, 2018,” International Monetary Fund, 31 October 2018.

44 in the right direction, the process was too gradual and fragmented to avoid the downward slide in the economy. In the second half of the 1980s, despite debt relief, foreign aid, and attempts at adjustment, economic growth was still in the low single digits and continued to hover between 20 percent and 30 percent. Additionally, the balance-of- payments problems continued to intensify. The economic difficulties became so severe that by mid-1990 the Fund concluded that Egypt might not be able to finance either its food imports or debt service obligations.

To combat this, Egypt signed an 18-month stand-by arrangement with the IMF for

SDR 234 million with the intention to restructure the programs that the IMF believed was causing these issues. Only SDR 147 million was drawn from the total of the 1991 agreement. The last IMF agreements signed before 2011 were in 1993 and 1996 for SDR

400 million and SDR 271 million respectively. However, from both these agreements, no money was drawn by the Egyptian government showing a failure in their ability to successfully adopt the policies of the documents. The IMFs lending to Egypt is characterized by the constant failure of the Egyptian government to successfully fulfill the IMF’s conditions and requirements. While this speaks to the inefficiency within

Egypt’s economy at the time, it also is not quite clear why the IMF in its roughly 20 years of lending to Egypt continued to write obligations that Egypt was unable to meet.

Regardless, after accumulating hundreds of millions of dollars in debt, Egypt was left in a frighteningly similar position that it started in after the IMF’s initial involvement up until the 1990s as will be further explained. While the economy began to move in the right direction in the late 1990s, the lack of transparency by the IMF makes it difficult to understand just how much of that was a result of the IMF programs themselves.

45

The World Bank and Egypt

In April 1978, the World Bank completed its agreement for the third of five Development

Industrial Bank (DIB) loans with Egypt.106 The DIB was established in 1975 and began operations in 1976, with the Special Services to Private Industrial Sector (SSPIS) unit of the Bank of (BOA) (Egypt’s largest bank at the time) at its center.107 The purpose of the DIB is to provide financing for projects within the industrial private sector through the offering of short, medium, and long-term loans. The DIB’s establishment was primarily a result of the increasing significance of Industry as a sector of the Egyptian economy, as the share of Industrial sector in Egypt’s GDP increased from 8-10 percent in

1946 to 21 percent in 1975.108 Additionally, the Industrial sector was responsible in 1978 for roughly 35 percent of total exports. As a whole, the Industrial sector achieved a growth rate of roughly 10 percent in both 1975 and 1976, while growth within Egypt’s

Agricultural sector became increasingly limited. Even with this impressive growth, the

World Bank saw multiple opportunities to further develop and improve Egypt’s Industrial sector. To assist in this development, the World Bank provided Egypt with multiple loans focused on the improvement primarily of the private segment of their Industrial sector.

106 The World Bank, IDF Regional Projects Department, Europe, Middle East and North Africa Regional Office, “Third and Fourth Development Industrial Bank Projects,” Project Completion Report, No. 1533- EGT and 1804-EGT, 27 June 1988.

107 Ibid.

108 The World Bank, Industrial Development and Finance Division, Europe, Middle East and North Africa Regional Office, “Egypt: Loan to Development Industrial Bank for Industrial Finance and Technical Assistance Project,” Staff Appraisal Report, No. 1809a-EGT, 28 February 1978.

46

The World Bank’s first two loans were credited to Egypt’s Industrial

Development Authority (IDA) before being re-lent by the government to the BOA and eventually transferred to the DIB in March 1977. The first of these loans, completed in

June 1973, totaled $15 million, and the second loan which was completed in 1975, was valued at $25 million.109 The general goal of these loans was to help stimulate development in Egypt’s Industrial sector. In an attempt to reach this objective, the World

Bank identified several negative factors that kept Egypt’s industrial sector from reaching its full potential. These included: out of date machinery, deficient production and management, preventative working conditions, a shortage of skilled labor, a lack of space for expansion, inefficient procurement of raw materials, the production of lower quality products than Western market standards, and the lack of access to institutional finance particularly for smaller size Small Scale Industries (SSIs).110 To aid in the alleviation of these issues and to further develop on objectives already met, the World Bank proposed a third loan of $40M in 1978 followed by a fourth loan of $50M in 1980 and a fifth loan of

$120M in 1981.

The objectives of the third and fourth loans were: to encourage private sector industrial growth, particularly the growth of SSIs; to strengthen DIB’s management and organization, project appraisal and supervision procedures; and lastly, to promote with financial and technical assistance an institute titled The Engineering and Industrial

110 The World Bank, Industrial Development and Finance Division, Europe, Middle East and North Africa Regional Office, “Egypt: Loan to Development Industrial Bank for Industrial Finance and Technical Assistance Project,” Staff Appraisal Report, No. 1809a-EGT, 28 February 1978.

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Design and Development Center (EIDDC) whose aim was to raise SSI productivity.111

The IMF’s 1978 Extended Fund Facility likely had similar conditions in its arrangements to the third and fourth DIB loan as well. After the completion of the third and fourth DIB loan projects, the World Bank ultimately ruled them both successful in their attempts to reach the objectives as: a large number of private enterprises had received foreign exchange loans which normally would have been out of their reach for feasible projects on appropriate terms; the DIB had become the paramount lender of private industrial term loans by phasing out public sector projects, and was now a financially strong and competent institution for the appraisal and supervision of industrial projects in Egypt; lastly, as a by-product of these loans, EIDDC had been equipped to provide extension services, managerial and technical assistance, information services, and sub-contracting opportunities to small scale enterprises alongside the DIB’s financing.112 These services helped increase the production and employment of these enterprises and formed the basis for the larger competitive enterprises of the future.

Along with furthering the objectives set out by prior loans, the primary objective of the World Bank’s fifth DIB loan was to support the development of the private industrial sector by providing long term finance through the DIB and by offering comprehensive technical assistance services aimed specifically at Small and Medium

111 The World Bank, IDF Regional Projects Department, Europe, Middle East and North Africa Regional Office, “Third and Fourth Development Industrial Bank Projects,” Project Completion Report, No. 1533- EGT and 1804-EGT, 27 June 1988.

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Scale Industrial enterprises (SMIs).113 A parallel objective was to continue the World

Bank’s institution building effort with the DIB through the provision of technical assistance for the training of DIB staff. While the World Bank did not mention that their objectives were completely fulfilled, it did state that satisfactory progress was made on some accounts. Six teams of extension officers were established, increasing the number of SMI units contacted by extension teams from 39 to 65 per month. Additionally, the target of 600 annual SMI units set forth by the program was reached in 1984, just a few years after the loan went into effect. Trainings in financial management which emphasized product cost analysis were a key component of the services offered to SMI enterprises as a part of the loan. In the loan’s Project Completion Report, it was recorded that the number of training courses as well as completed hours of training courses greatly exceeded the projected level. However, shortcomings in the program’s implementation were noticed in two areas: the Federation of Egyptian Industry had not been very effective in disseminating information to its SMI members about the activities undertaken despite the protocol of cooperation; and while the extension service had been greatly received by its SMI clients, it had not yet resulted in the use of more modern technology and production methods by the SMI clients. Another failure of the loan was that the third phase of the program had not made any progress at the time of the completion report due to multiple delays in the signing and effectiveness of the loan. This phase of the loan aimed to increase the number of extension teams and their regional coverage, streamline

113 The World Bank, Industry and Energy Operations Division, Europe, Middle East and North Africa Regional Office, “Fifth Development Industrial bank Project (DIB V),” Project Completion Report, No. 2074-EGT, 3 October 1991.

49 the operations of the subcontracting exchange, and further continue financial management training services.

The World Bank achieved multiple successes with its DIB loans, as it created an institution that effectively fostered growth in Egypt’s private Industrial sector and continued to lead multiple development projects in Egypt’s Industrial sector long after its establishment. However, in establishing the DIB and improving its effectiveness, the

World Bank looked past many of the issues surrounding Egypt’s Industrial sector that it previously outlined. In the 1978 Appraisal Report for the third DIB loan, the World Bank mentioned that the concerns and issues stated regarding Egypt’s Industrial sector while important, were not critical to the implementation of the proposed projects.114 However, as seen in the results of the fifth DIB project, many of the issues did in fact play a role in the World Bank’s ability to reach the objectives of its DIB loans. Additionally, in the ten- year gap between the fifth DIB loan’s effective date and its completion, it was not reported that much was done about the looming shortcomings as they became apparent.

The World Bank pursued its main goal of establishing and further developing the DIB with a focus on the private SSI and SMI enterprises but paid less attention to the

Industrial sector holistically and how it could impact their strategies. This reactive nature of the World Bank was seen in multiple future instances as well. After the fifth DIB loan, the World Bank had lent a total of around $250 million to the DIB.

114 The World Bank, Industrial Development and Finance Division, Europe, Middle East and North Africa Regional Office, “Egypt: Loan to Development Industrial Bank for Industrial Finance and Technical Assistance Project,” Staff Appraisal Report, No. 1809a-EGT, 28 February 1978.

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In addition to its DIB, the World Bank also launched another program in 1978 titled the Agricultural Development Project. Its primary objectives were to: increase small farmer income through mechanization; test machinery and carry out pilot trials in covered irrigation; and evaluate the impact of mechanization.115 The total cost of this project was $46 million with a total loan credit amount of $32 million. Initially, start-up and execution of the project was considerably delayed as there was not a full-time project director or administration staff established for the first two and a half years. Once the project team was established, there were constant changes in its personnel throughout the six-year implementation period. Additionally, the project experienced implementation difficulties since its design was organizationally complex with eight diverse components as well as cooperation and coordination among nine different departments and agencies.

Project management improved extensively once the project was revised in April 1981 with the elimination of multiple components. In conclusion, the project had mixed but relatively poor success in reaching its objects. The project’s main objective of reaching small farmers was not achieved, primarily as a result of the aforementioned troubles.

Other objectives such as demonstrating appropriate farm mechanization and institution building were also not satisfactorily achieved. However, the project did achieve useful results such as the success of its pilot irrigation program, the construction of electric lines, the providing of trainings, housing for extension staff, and some agricultural machinery.

115 The World Bank, Operations Evaluation Department, Europe, Middle East and North Africa Regional Office, “Agricultural Development Project,” Project Performance Audit Report, No. 830-EGT, 30 June 1988.

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In 1985, a Second Agricultural Development project was launched. While similar to the preceding Agricultural Development project, this project had differences in its specific objectives.116 These objectives included: to promote increased agricultural productivity through introduction of appropriate farm technology, including farm machinery service; to assist in the modernization of the national seed industry; and to improve the efficiency of the agriculture credit system. The loan credit given to Egypt in the Second Agricultural Loan totaled at $80 million.117 The original eight components of this project were restructured and reduced in order to decrease the project’s complexity and prevent implementation delays. However, despite these efforts, the project still suffered a significant delay in its start-up. The internal procedures in Egypt for authorization of signing took over nine months from Board approval to the signing of the actual Loan Agreement and it took another sixteen months for the Loan to become effective. Furthermore, after a reorganization of the implementation agency and multiple changes in macroeconomic policies, the Loan Agreement was amended in 1988 three years after its signing. Delays persisted even after the restructuring of the loan and the project closed in 1994 despite its revised scheduled close of 1993. Results in implementation for this project were mixed in accordance with the results of the

116 The World Bank, Natural Resources, Water and Environment Division, Middle East and North Africa Regional Office, “Second Agricultural Development Project,” Implementation Completion Report, No. 2561-EGT, 20 March 1995.

117 The World Bank, Natural Resources, Water and Environment Division, Middle East and North Africa Regional Office, “Second Agricultural Development Project,” Implementation Completion Report, No. 2561-EGT, 20 March 1995.

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Agricultural Development project prior. While authorized dealers were allowed to purchase foreign currency from the Principal Bank for Development and Agricultural

Credit (PBDAC) for importing machinery, due to restrictions imposed by the government on the importation of machinery coupled with the devaluation of the , the project received a very low response from potential importers. With this low response from potential importers, the PBDAC took an active role in working to have the importation restrictions removed and with their efforts alongside the World Bank’s supervision team and by 1990, most of the regulation was removed. By 1994, the restructured project was completed successfully to the World Bank’s standards.

The problems encountered in the implementation of Agricultural Development projects are a representation of some of the problems present in many of the World

Bank’s future programs as well. The World Bank discussed in its “lessons learned” segment of the loan’s 1995 Implementation Completion Report, five main categories of what to consider moving forward: Keep it Simple; Parallelism Among Donors;

Understand the Risks; Check the Regulation; and Implement Projects with Flexibility.118

However, the majority of these lessons are all things that were realized after the first

Agricultural Development Project. The results section even mentions in its introduction that “this project could have benefited from applying the lessons learned under the First

Agricultural Development Project” as if none of these problems arose before the second project’s Loan Agreement. Luckily for Egypt, not a great deal of fiscal policy came out

118 “The World Bank, Natural Resources, Water and Environment Division, Middle East and North Africa Regional Office, “Second Agricultural Development Project,” Implementation Completion Report, No. 2561-EGT, 20 March 1995.

53 of these two loans, and therefore a substantial impact on Egypt’s economy could not result solely from them. The $112 million total credit received from these loans, however, did have an impact to its current debt levels at the time.

In November 1991, the World Bank completed its agreement with Egypt for a

$300 million SAL.119 This loan came at the same time of an IMF Stand-by Arrangement in 1991 for SDR 234 million. While they were two separate loan agreements, both had a similar purpose of restructuring Egypt’s fiscal policy in order to alleviate some of its economic distress and therefore likely had similar conditions on each of the loans. The

World Bank’s primary areas of responsibility had been: price and trade liberalization, public investment, private enterprise reform and privatization, regulatory reforms, financial sector reform, and the strengthening of the social safety net. The World Bank’s

1991 SAL however, began to blur these already thin lines of differences between the

World Bank and IMF.120 The SAL’s objectives were outlined under six segments: macroeconomic reform, public enterprise reform, domestic price liberalization reform, foreign trade liberalization, private sector reform, and the Social Fund for Development.

The areas under the IMF’s responsibility up to this point had been: fiscal, monetary, and foreign exchange policies, as well as tax policy. Regarding macroeconomic reform, the

World Bank sought to curtail Egypt’s inflation, reduce the current account and budget

119 The World Bank, “Structural Adjustment Loan between Arab Republic of Egypt and International Bank for Reconstruction and Development,” Loan Agreement, No. 3353-EGT, 22 November 1991.

120 The World Bank, Country Operations Division, Middle East and North Africa Region, “Structural Adjustment Loan,” Implementation Completion Report, No. 3353-EGT, 22 January 1996.

54 deficits, restore creditworthiness, and bring about high and sustainable long-term economic growth. In reforming Egypt’s public enterprise, the World Bank sought to increase economic efficiency through competition. It aimed to do this by privatizing and restructuring public enterprises and reforming the financial relationships between the public enterprises, the banking system, and the government so that public enterprises were to be subject to the same rules and obligations as public enterprises. The role of the government was to be limited to the role that a major shareholder in a large corporation would hold and public enterprise managers were to have full financial, commercial, and managerial autonomy. Additionally, the liquidation of non-viable public enterprises and privatization of public enterprises was to be both allowed and encouraged.121 With domestic price liberalization reform, the World Bank aimed to increase economic efficiency through the removal of government-imposed “distortions” on the pricing system and to promote competition. Price controls within the public and private agriculture and manufacturing sectors were to be destroyed with most prices to be fully controlled by the market in three years’ time. The World Bank’s goals with foreign trade liberalization were to promote import competition and export rivalry as well as remove some government controls in the incentive system. To achieve this, trade reforms were initiated under the Economic Reform and Structural Adjustment Program (ERSAP) to phase out most nontariff barriers to imports and exports and within two years, reduce

123 The World Bank, Country Operations Division, Middle East and North Africa Region, “Structural Adjustment Loan,” Implementation Completion Report, No. 3353-EGT, 22 January 1996.

55 high customs tariffs and dismantle restrictions on exports. The Social Fund for

Development was also created with the purpose to minimize the effect of further economic reforms on the poor and enhance labor mobility as a whole.

There were several indicators to measure the achievement of the objects put in place under the 1991 SAL. For trade reform, reduction in the domestic production coverage of import bans, removal of a number of prior approvals for imports, the level of minimum and maximum import tariffs, the removal of tariff preferences, and the reduction of export bans were all ways to measure Egypt’s progress. Regarding public enterprise reform and privatization, the remaining share of existing affiliated companies to be recognized as Holding Companies (HCs), amount of asset value to bring to the point of sale (POS), and total completed sales were all indicators. Within private sector development, indicators such as the share of commercialization of cement and fertilizer by private companies were used. Lastly, price liberalization progress was indicated by analyzing the prices of petroleum and producer cotton prices according to targets relative to world market equivalent.122 Judging from the performance of these indicators over the five years from 1991-1996, the overall implementation of the SAL was deemed

“satisfactory”, with the Egyptian government in many cases going above and beyond the objectives outlined by the loan.

The SAL macroeconomic stabilization program helped reduce the fiscal deficit from roughly 17 percent of GDP in 1991 to 2.5 percent and helped shift the primary

122 The World Bank, Country Operations Division, Middle East and North Africa Region, “Structural Adjustment Loan,” Implementation Completion Report, No. 3353-EGT, 22 January 1996.

56 deficit of about 9.5 percent of GDP to a primary surplus of about 10 percent 1994. The rate of growth of broad money supply declined from 28 percent in 1992 to about 12 percent in 1994, and during the same period, the foreign exchange market was unified ahead of schedule and restrictions were eliminated. However, the Egyptian pound remained flat against the US dollar at about LE 3.3 per USD from a rate of LE 3.2 per

USD in 1991. Inflation slowed significantly from over 20 percent. in 1991 to about 9 percent in 1994. Interest rates were liberalized at the beginning of the reform schedule and declined from roughly 20 percent on 90-day treasury bills (TBs) to roughly 12 percent in 1994. Real interest rates, which were negative before the program, turned positive, and were more in line with real international rates by 1994. The balance of payments also performed better than initially projected, with the current account balance swinging from a deficit of $2.6B in 1990 to a surplus of $3.7B in 1992 before declining to a surplus of $0.2B in 1994. The overall balance of payments shifted from a deficit of

$1.2B in 1990 to a surplus of $1.7B in 1992. Lastly, Egypt’s foreign debt to GDP ratio declined from over 150 percent before the SAL to 70 percent in 1994, bringing Egypt down to the characterization of moderately indebted countries.

While the SAL saw successes in macroeconomic stabilization, the World Bank experienced a much tougher time achieving its goals regarding the development in the private sector.123 Multiple factors hampered the development of the private sector, specifically within the industrial sector. Private sector initiatives were impeded by

123 The World Bank, Country Operations Division, Middle East and North Africa Region, “Structural Adjustment Loan,” Implementation Completion Report, No. 3353-EGT, 22 January 1996.

57 restrictions on access to bank credit and foreign exchange as well as administrative requirements such a product licensing. The World Bank was only able to push for a reduced list of products that could not be licensed. In addition, the SALs privatization program suffered multiple delays as the government was preoccupied with the enactment of the public enterprise law and reorganization of the HCs (other key components of the

SAL’s objectives). As a result, performance under the 1991/92 privatization program fell short of expectations.124 However, by 1994, the pace of privatization began to pick up and it was ruled that overall progress for the 1993/94 program was achieved. The SAL’s price liberalization efforts were also successful by World Bank terms, as all agricultural prices were liberalized except for the price of sugar by the close of the project.

Additionally, the SAL met its targets for both electricity prices and petroleum product prices. The SAL only fell short of its price stabilization targets in the transportation sector.

The SAL outlined multiple downside risks factors to the program. These included: the declination of popular support for the program as a result of the lingering of economic stagnation and unemployment still on the rise; the reduction in the government’s room to maneuver as a result of an increase in violence by extremist groups as well an increase of opposition among vested interest groups; and the loss of credibility of the reform program if the government does not proceed with the next phase which result in capital flight from Egypt and a decline in an already low level of private investment.

124 The World Bank, Country Operations Division, Middle East and North Africa Region, “Structural Adjustment Loan,” Implementation Completion Report, No. 3353-EGT, 22 January 1996.

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In 2006 and 2008 respectively, the World Bank approved the Egypt Financial

Sector Development Policy Loan (DPL) I & II. These were loans of $500 million each given with the basic objective being to build a more competitive financial sector.125 In the early 1990s, an IMF Stand-By Arrangement, the World Bank Structural Adjustment

Loan, and a 50 percent debt/debt service reduction (DDSR) all were established to support the reversal of the inward-looking public-sector led development strategy of the previous four decades. While successful in many efforts, the commitment made to privatize two of the four state-owned banks and sell the public shares in joint-venture banks was not realized.126 Additionally, the improvement in the regulation of banks, covering of solvency margins, and loan classification and provisioning did not go very far resulting in state-owned banks re-accumulating large amounts of non-performing loans

(NPLs). The financial sector continued to face challenges given low levels of competition, relatively high intermediation costs, limited innovation, and dominance of state ownership. While NPLs dominated the banking system, the non-bank segment was characterized by underdeveloped bond, insurance and mortgage markets, thin trading in equities, weak corporate governance, and weak infrastructure for effective payment and credit information systems.

125 The World Bank, Independent Evaluation Group, “An IEG Comparative Review Based on Project Performance Assessments of Egypt Financial Sector Development Policy Loan; Egypt Second Financial Sector Development Policy Loan,” Implementation Completion Report, No. 73910-EGT and 75280-EGT.

126 The World Bank, Independent Evaluation Group, “An IEG Comparative Review Based on Project Performance Assessments of Egypt Financial Sector Development Policy Loan; Egypt Second Financial Sector Development Policy Loan,” Implementation Completion Report, No. 73910-EGT and 75280-EGT.

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The Financial Sector DPL I helped to solve these issues through the following policy areas: strengthening the legal, regulatory and supervisory framework in banking and insurance; institutional and operational restructuring of state-owned banks; reducing public sector ownership and control over banking sector institutions; restructuring and privatizing state-owned insurance companies; and strengthening the fiduciary framework for public financial management and corporate financial reporting. The Financial Sector

DPL II followed the same list of policies of the Financial Sector DPL I with the exception of the discontinuation of strengthening the fiduciary framework for public financial management and corporate financial reporting. Both DPLs were initiated under the scope of one of the World Bank’s primary objectives under its Country Partnership Strategy

(CPS) with Egypt for 2006-2009, which was to strengthen the capacity of the financial system in order to facilitate private sector development (which is present throughout prior

World Bank programs with Egypt).127

In achieving their objectives, the Financial Sector DPL I and II failed to address fundamental shortcomings including: the absence of a modern bankruptcy law and insolvency regime, and the lack of efficient registry of collateral security on movable assets. However, even with these shortcomings the program was able to achieve success in multiple areas. 60 percent of state-owned bank NPLs to state owned enterprises

(SOEs) were settled by the government by June 2008 through the Financial Sector DPL I

127 The World Bank, “An IEG Comparative Review Based on Project Performance Assessments of Egypt Financial Sector Development Policy Loan; Egypt Second Financial Sector Development Policy Loan,” Implementation Completion Report, No. 73910-EGT and 75280-EGT.

60 and the remaining were settled in June 2010 through the Financial Sector DPL II. In addition, safeguards were introduced as a part of the reform program to prevent the future accumulation of new bad loans to SOEs by the state banks. For example, the Ministry of

Finance issued a policy forbidding state guarantees for state enterprises which played a large part in eliminating the directed lending, a process partly responsible for NPLs of

SOEs held by state-owned banks. Regarding the restructuring of state-owned insurance companies, an Insurance Holding Company was established in 2006 by the (CBE) which took ownership over all state-owned insurance companies.

Additionally, amendments to the Insurance Code were enacted that raised the minimum capital of insurance companies, required the separation of life and non-life insurance business, and authorized corporate insurance brokers. The International Financial

Reporting System standards were introduced and adopted by financial services firms in order to improve the efficiency of Egypt’s securities markets.128 A private credit bureau was established in 2007 and became operational in March 2008, which built a database of constantly updated credit reports that included details on the clients’ loan history. Due to the aforementioned achievements, the World Bank ruled the Financial Sector DPL I and

II programs successful. The World Bank also claims its reforms put in place allowed for the banking system to weather the global financial crisis of the late 2000s, as the

128 The World Bank, “An IEG Comparative Review Based on Project Performance Assessments of Egypt Financial Sector Development Policy Loan; Egypt Second Financial Sector Development Policy Loan,” Implementation Completion Report, No. 73910-EGT and 75280-EGT.

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Egyptian banking sector did not have any exposure to the complex products that gave rise to the financial crisis and its leverage was not excessive.

Egypt’s Macroeconomy

It is a complicated argument whether or not the IMF and World Bank programs conclusively had a positive impact on the Egypt’s economic situation. In many of its

Project Completion Reports, the World Bank deems many of its major projects with

Egypt, such as the ones discussed earlier, successes. However, these projects are only measured as successes in the scope of the conditions that the institution had set out for

Egypt to fulfil. The World Bank does not measure these successes from a wholistic standpoint of the scope of the improvement of the Egyptian economy. The ending result is that while these projects may deliver a momentary period of growth and stability for the sector of Egypt’s economy in which the project directly pertains to, a minimal effect is had on its GDP, unemployment, or inflation metrics.129 130 131 Furthermore, any substantial impacts that the IMF and World Bank policies did have on Egypt’s economy were not sustained.

129 “Egypt GDP Growth (Annual%),” International Financial Statistics and Data Series, World Bank, 2018, https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG.

130 “Egypt Inflation, Consumer Prices (Annual%),” International Financial Statistics and Data Series, World Bank, 2018, https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?locations=EG .

131 “Egypt Unemployment, Total (% of Total Labor Force) (Modeled ILO Estimate),” International Financial Statistics and Data Series, World Bank, https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?locations=EG.

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Egypt’s annual GDP dropped from 14.63 percent in 1976 to 5.78 percent in 1978, prompting the diagnosis of Egypt’s situation and appraisal of multiple projects by the

World Bank and IMF throughout this period.132 In 1980, Egypt’s GDP rose back to 10.0 percent before falling once more to 3.76 percent in 1981. This up and down trend continued with a constant declination in its GDP’s peaks and troughs until it bottomed out around 1.10 percent in 1991. This led to the implementation of the discussed

Structural Adjustment Loans from the IMF and World Bank which gradually rose GDP to what seemed to be a stable 5-6 percent. However, after 1999, it dropped down to 2.37 percent before rising and dropping again in 2011 to 1.78 percent. Global unemployment rose through the 1990s until 1999, when it initiated a downward trajectory that persisted until the global financial crisis from 2007-2009.133 Egypt’s unemployment took a sharp decline however from 1995 to 1999 from roughly 11 percent to 8 percent, before consistently increasing annually back to 11 percent by 2003. When unemployment finally seemed to be improving in 2006, it was spiked by the global financial crisis. Egypt’s inflation doesn’t tell a much better story as it increased from 11 percent in 1978 to roughly 24 percent in 1986, before starting a very gradual downward trajectory which it continued into the early 2000s.134 It was not until the late 1990s, that sustained progress was witnessed by Egypt’s economy. In many circumstances, the World Bank in its

132 “Egypt GDP Growth (Annual%).”

133 “Egypt Unemployment, Total (% of Total Labor Force),” International Financial Statistics and Data Series, World Bank, 2018, URL.

134 “Egypt Inflation, Consumer Prices (Annual%).”

63 programs and projects, especially before the 1990s, ran into constant difficulties surrounding regulation, delays in implementation, keeping an accountable project team together, consistently monitoring performance, etc. Looking at overall economic performance for Egypt up until the 1990s, it’s almost as if Egypt was incurring millions of dollars of debt while the World Bank and IMF attempted to try and figure out both what the problem really was, and what the best ways to combat that problem were.

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Chapter 3: IMF and World Bank Involvement After the 2011 Egyptian Revolution

In October 1981, eight days after the assassination of Anwar Sadat, former Vice

President Hosni Mubarak assumed the role of President of Egypt.135 In an effort to punish the Islamist group responsible for Sadat’s assassination, Mubarak launched a campaign in the 1980s against all suspected Islamists. Thousands were arrested, detained, and tortured by a newly created special division of Egypt’s state security department, Intelligence Unit

75. The human rights violations committed by Egyptian security services against

Islamists only worsened throughout the 1990s and 2000s under Mubarak’s rule as radical

Islamic activity continued to increase.

Growing Unrest and Corruption under Mubarak

In the 1990s, Mubarak began to lose control of his hold on radical , with near- daily terrorist attacks and hundreds of deaths recorded each year. In addition, multiple assassination attempts were made on multiple government officials by the radical Islamist group, Islamic Jihad. These included: the group’s failed attempt at assassinating Interior

Minister Hasan al-Alifi in 1993, who at the time was the leader of the campaign against radical Islamists; in 1993, the group’s failed attempt to assassinate the Prime Minister which resulted in 21 injuries and the death of a young girl; and lastly, a failed attempt in

135 Andrew Heiss. “The Failed Management of a Dying Regime: Hosni Mubarak, Egypt’s National Democratic Party, and the January 25 Revolution,” Journal of Third World Studies 29, no. 1 (2012): 161.

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1995 to assassinate President Mubarak while he was at a conference in Ethiopia.136 While groups such as Islamic Jihad focused primarily on government officials, other groups were centered upon terrorizing Egypt’s general population. Al-Gama’a al-Islamiyya for example, was alone responsible for the deaths of 1,200 Egyptians between 1992 and

1997. The group’s most infamous attack took place in Luxor in November 1997 and was responsible for the deaths of 58 tourists and four Egyptians. Mubarak continued to crack down on these groups by jailing and torturing hundreds of suspected Islamists after each major attack and after the attack in 1997, violent Islamic terrorism began to decline as public opinion overwhelmingly turned against the groups.137

While he found some success in his methods, Mubarak gained many enemies for how his regime dealt with Islamic terrorism. In an effort to maintain stability and control over Egypt, Mubarak closed off the political system, allowing for a much smaller amount of political opposition to the National Democratic Party (NDP) than what was previously allowed by the regime in the 1980s. In 1990, opposition parties won 23 seats or only 7 percent of parliament compared to 100 seats or 21 percent of parliament in the 1987 elections as a result of new laws and increased election interference by the regime.138 In an effort to protest the interference in elections and restrictive election laws recently put in place, the Muslim Brotherhood boycotted the 1990 parliamentary elections after

136 Hesham Al-Awadi, “Mubarak and the Islamists: Why Did the ‘Honeymoon’ End?” Middle East Journal 59, no. 1 (2005): 76.

137 Heiss, “The Failed Management of a Dying Regime,” 163.

138 “Press Release: Egyptian Authorities Clamp Down on Dissent,” Middle East Watch, 13 February 1991, https://www.hrw.org/legacy/reports/pdfs/e/egypt/egypt912.pdf.

66 winning 35 seats in the elections held three years prior.139 During the voting period in

1995, it was reported that 87 people were killed and 1,500 were injured in violence aimed at intimidating voters. The regime also did not take kindly to Muslim Brotherhood’s growing influence and took efforts in the 1990s specifically to repress their political presence. This had a large impact on turnout as the presence of opposition parties fell to new lows, accounting for only 13 seats or 3 percent of parliament in the 1995 elections.

With politics characterized by one-party rule and a society in which its members were threatened by terrorism and subject to arrests and torture, one would hope Mubarak would at least have a handle on the economy. However, Mubarak’s economic decisions resulted in him receiving even more scrutiny.

After three years of negotiation and talks in 1987 and 1988 for a loan agreement and replacement respectively, the IMF and Mubarak agreed in 1991 on a Structural

Adjustment Program (SAP)140. Among other things, the SAP called for state-owned businesses to be sold off and privatized and for a significant reduction in state subsidies on food items and agricultural inputs. While Egypt’s economic struggles left Mubarak with little to no options, the backing of policies such as these further contributed to the grievances of the Egyptian people. In the 1980s, Mubarak avoided making specific proposals on reform and focused instead on improving the targeting and quality of provided food items instead of removing the provision of subsidies in an effort to not

139 Al-Awadi, “Mubarak and the Islamists Hesham,” 71.

140 Ray Bush, “Crisis in Egypt: Structural Adjustment, Food Security and the Politics of USAID,” Capital & Class 53 (1994): 26.

67 anger the public.141 When Mubarak proposed these changes in 1992, unemployment remained around 20 percent of the roughly 14 million workers and ending subsidies on food items and agricultural inputs increasingly exacerbated problems for the urban and rural poor. By 1995, only bread, wheat flour, and edible oil remained in the subsidy system, down from 20 goods in the 1980s.142 A consumer price report issued by the

Central Agency for Mobilization and Statistics stated that price rises in 1992 averaged

15.7 percent for food and drink, 22.5 percent for transportation, and 32.4 percent for rents, electricity and fuel. While it wasn’t the intention of the IMF or World Bank, the

SAP’s calling for the privatization of public companies indirectly served as a vehicle for

Mubarak and NDP to increase their power. Mubarak would order state-owned firms to be sold to high-level NDP officials, allowing for him to control both the companies and their profits in his control while privatizing them. This added to an already corrupt image and increased the public’s disdain for the NDP.

A Divided NDP

As a result of Mubarak’s ruthless management style throughout the decade, a deep division formed in the NDP elite in the late 1990s and early 2000s.143 The party split into two factions: the old guard, which primarily included ex-ASU leaders who had been involved in Egyptian politics for decades; and the new guard, a group of younger political

141 Heiss, “The Failed Management of a Dying Regime,” 164.

142 Flavia Lorenzon, “The Political Economy of Food Subsidies in Egypt,” 119.

143 Heiss, “The Failed Management of a Dying Regime,” 165.

68 and business leaders many of whom studied in the United States or Great Britain and asserted themselves into Egyptian politics with the means of restricting the role of the state within the economy. While its members wholly opposed the old guard, the new- guard was hardly unified in itself. The new-guard was made up of primarily of three different groups: young members who were highly ambitious and reform-minded, so much that some were willing to break away from the party; “liberals from the past” who acknowledged a need for reform but were much less ambitious; and centrists, who believed in reform but were unwilling to break from the party.144 Mubarak aligned himself with both the old guard, as they were made up of his peers, and the centrists, which included his son, Gamal. In order to continue his legacy, President Mubarak began to pass down many of his managerial duties to Gamal and the centrists. This move by

Mubarak added to the regime’s corruption, as it indicated a potential relapse to monarchical rule from Egypt’s current republic. The media and press began to expose this rumored news and in 2004, Abd al-Halim Qandil, editor-in-chief of the Nasserist al-

Arabi magazine, which mentioned the alleged succession attempt, was kidnapped, beaten and threatened.145 This and other acts by the regime validified the purported rumors, adding to the public’s grievances and resulting in more protests against Mubarak’s regime.

144 Stephan Roll, “ and the Discord in Egypt’s Ruling Elite,” Carnegie Endowment For International Peace, 1 September 2010, https://carnegieendowment.org/sada/41490.

145 Ebtisam Hussein, “Rationalizing Public Repression: Mubarak’s Self-Toppling Regime,” Middle East Policy 25, no. 1 (2018): 127.

69

In 2005, Gamal proposed to Mubarak a reformation of the Egyptian constitution to allow for a direct presidential election.146 After his proposal was accepted, Gamal orchestrated the campaign which resulted in President Mubarak winning with 88.6 percent of the votes. However, internal NDP tensions resulted in an overwhelming success for the old guard and heavy losses for the centrists in the latter parliamentary elections. One of the chief presidential campaign developers, a centrist named Hosam

Badrawy, lost his seat in parliament as a result of the elections and exposed the lack of cohesion in the NDP in an interview following the elections. The press, which was increasingly becoming a target of the regime, further exposed these rising internal tensions within the NDP by covering topics including: an alleged rigging of the elections, misconduct and corruption in government ministries, and the “rumored” succession plan of President Mubarak’s son Gamal.147 The public’s gained knowledge of the NDP’s weakening power resulted in an increase of uprisings, strikes, and protests from labor unions, political parties and the general public. After Egypt’s 2010 elections, which were characterized by allegations of widespread voter intimidation and fraud, the presence of

NDP’s opposition was nearly eliminated in the People’s Assembly148. By 2011, the actions of Mubarak and the NDP extinguished nearly all of the regime’s legitimacy and

146 Heiss, “The Failed Management of a Dying Regime,” 165.

147 Hussein, “Rationalizing Public Repression,” 126.

148 Soraya Nelson, “Furor Grows Over Egypt’s Election Results,” National Public Radio, 30 November 2010, https://www.npr.org/2010/11/30/131704396/calls-grow-to-set-aside-egypt-s-election-results.

70 with little to no representation, the Egyptian people felt that they had no option other than to revolt.

The Revolution of 2011

In January 2011, , a member of the April 6 Movement activist group, posted a video to the public encouraging Egypt’s youth to go to in Cairo to protest against Mubarak and the NDP. With the recent success of Tunisia’s 4-week revolution, the Egyptian people were drawn to this call of action.149 90,000 Egyptians pledged support on Facebook for the planned “Day of Revolt” which fell on Egypt’s

National Police Day, the 25th of January. On the designated day of protest, tens of thousands gathered in Cairo with thousands more gathering in other Egyptian cities including Alexandria, Suez, and Ismailia.150 As the protests persisted, civil unrest increased throughout Egypt, leading to Mubarak’s first address to the nation on 28

January in which he pledged to form a new government and replace his cabinet.151

However, due to the NDP’s dominant rule in the government, the replacement turned out to be a shuffle of current and former NDP leaders which did nothing to appease the protesters. Two days later, Mubarak made another address to the media, promising political reforms and vowing to not run in the future September elections. The public

149 “Arab Uprising: Country by Country – Tunisia,” BBC News, 16 December 2013, https://www.bbc.com/news/world-12482315.

150 Yolande Knell, “Egypt’s Revolution: 18 Days in Tahrir Square,” BBC News, 25 January 2012, https://www.bbc.com/news/world-middle-east-16716089.

151 Heiss, “The Failed Management of a Dying Regime,” 165.

71 once again was unphased, and violence began to escalate between Mubarak’s supporters and revolutionaries as the protests continued. Many demonstrations later, Mubarak addressed the media on 10 February with what many expected to be his resignation speech. The public was outraged when Mubarak took to the podium to announce that he planned to stay in power until the previously announced emergency presidential elections in September. After the President’s speech, demonstrations resumed with increased intensity until 6pm on 11 February when Mubarak’s Vice President, , announced the president’s official resignation. Numerous cases of excess force by the police and military were reported to have been used to disperse and discourage crowds during the 18 days of protests including: the firing of live ammunition, running over civilians with vehicles, and the torturing of detained protesters all of which, resulted in over 800 civilian casualties and over 6,400 injuries.152153

The Political Rise and Fall of the Muslim Brotherhood

After the Egyptian Revolution’s success in removing President Mubarak and the NDP, a military interim government supportive of the revolution led by the Supreme Council of the Armed Forces (SCAF) took over leadership.154 During the revolt, multiple social groups were brought together in opposition to Mubarak and his regime including

152 Jack Shenker, “Tahrir Square Protesters Killed by Live Ammunition,” The Guardian, 24 November 2011, https://www.theguardian.com/world/2011/nov/24/tahrir-square-protesters-killed-ammunition.

153 “Egypt Unrest: 846 Killed in Protests – Official Toll,” BBC News, 19 April 2011, https://www.bbc.com/news/world-middle-east-13134956.

154 H.A. Hellyer, “The Chance for Change in the Arab World: Egypt’s Uprising,” International Affairs 87, no. 6 (2011): 1316.

72 feminists, Leftists, Islamists, Arab nationalists, etc. of various social classes and educational backgrounds. While these groups shared opinions on Mubarak, they were not united in their vision for the future of Egypt. The Muslim Brotherhood, the most heavily supported and organized political party after the ousting of the NDP, decided to take advantage of this situation and attempted to consolidate its power. In March 2011, a referendum was held to approve or reject the forming of an amended constitution and initiate a process that would soon lead to new parliamentary and presidential elections.

Many of the political groups disapproved of this plan, as they wanted an entirely reconstructed constitution and feared elections being held in the short-term would not give them ample time to prepare ultimately leading to the Muslim Brotherhood and the remaining members of the former regime taking power.

The Muslim Brotherhood campaigned heavily for a vote in favor of the referendum and in March 2011, nearly 78 percent of votes supported the proposal.155 The results of the referendum sent the message that the Egyptian people were more willing to sacrifice the idea of an entire reformation for stability and a return to normality. From

March to May, the Muslim Brotherhood went from campaigning for 30 percent of the parliamentary seats to 50 percent, sending the message to political groups that they were much more interested in securing their own position than a political consensus.156 At the end of May, members of other political groups called for a protest against the military

155 Mostafa Shehata, “Egypt’s Political Actors Post-2011 Revolution: Incomplete Struggle for Democracy,” Digest of the Middle East Studies 27, no. 2 (2018): 214.

156 Hellyer, “The Chance for Change in the Arab World,” 1318.

73 leadership and demanded that a presidential council should replace the SCAF to develop a new constitution immediately instead of after elections as previously planned.

Additionally, the ongoing military trials for civilians, the delay in bringing those within the Mubarak regime to trial, and the treatment of protesters who were imprisoned by the military, continued to anger the former revolutionaries. Civilians gathered on 27 May in

Tahrir Square to protest the military, voicing the prior mentioned demands and concerns.

The Muslim Brotherhood portrayed the 27 May demonstrations as almost counter-revolutionary and reaffirmed its support for the SCAF and military. However, while voicing their lack of support, the Muslim Brotherhood simultaneously issued similar demands to those of the demonstrators. This resulted in the participation of many young Muslim Brotherhood members in the 27 May gathering against the wishes of the group’s leaders, and in response, the party withdrew its youth movement from the general

Revolutionary Youth Coalition, ultimately solidifying its separation from other political groups. Nonetheless, the Revolutionary Youth Coalition continued to organize demonstrations three of which in October, November, and December 2011 resulted in 28,

38, and 18 deaths respectively from the use of deadly force by the police and military forces.157 As these demonstrations took place, the Muslim Brotherhood continued to disassociate themselves with the Revolutionary Youth which in turn sided them with the repressive measures against opposition groups that were prevalent during Mubarak’s rule.

157 Shehata, “Egypt’s Political Actors Post-2011 Revolution,” 215.

74

The Muslim Brotherhood dominated Egyptian politics once elections came. In the parliamentary elections held in early 2011, the Muslim Brotherhood’s Freedom and

Justice party won 46 percent of the seats and in a second election held in beginning of

2012, the Freedom and Justice party won 58.3 percent of the seats.158 The first presidential election after the revolution was held in May 2012 between 13 different candidates and was narrowed down to two candidates in its second round: Mohammed

Morsi, the candidate for the Muslim Brotherhood; and , the former Prime

Minister of Egypt from January to March 2011. The elections went in the favor of the

Muslim Brotherhood by a narrow margin, with Morsi winning 51.7 percent of the vote.

However, Morsi quickly gained opposition in the judiciary and military only months after he took office by ousting the defense minister Mohammed Hussein Tantawi, canceling a constitutional declaration which had given the military a central role, and issuing a constitutional declaration to limit the interference of the attorney general and the

Supreme Constitutional Court. In opposition to a draft of a final constitution which was pending popular referendum, demonstrators organized in front of the presidential palace in December 2012. Morsi’s supporters stormed the protestors leading to several deaths and the injury of hundreds. As the severity of the struggle between the Muslim

Brotherhood and its opposition continued to increase, the leftists and liberals began to attract the attention and support of former NDP politicians and antievolutionists from

158 Shehata, “Egypt’s Political Actors Post-2011 Revolution,” 216.

75

2011 who also wanted to oust Morsi.159 Demonstrations against Morsi erupted across the country in June 2013 and eventually gained the support of the military who overthrew and detained Morsi in July.160

Forced Political Stability

After he was ousted, many demonstrators organized in opposition to the military’s intervention with the goal to reinstate Morsi. In the early months following the overthrow of Morsi, these demonstrations put on by the Muslim Brotherhood and others left over

1,300 civilians dead and 3,500 arrested.161 Presidential elections came later in 2014 between two candidates, the former defense minister, Abd al-Fatah al-Sisi, and the leader of the , . The election was won by al-Sisi with

96.9 percent of the vote; however, the elections were deemed repressive by many with a turnout of only 47.5 percent of eligible voters. The results of the parliamentary elections of 2015 were reported to have been the product of blatant intervention from military intelligence with participation that did not exceed 28.2 percent. The intervention of the military and government in the presidential and parliamentary elections, which was even more explicit than it had been during Mubarak’s regime, sent a message to the Egyptian

159 Ashraf El Sherif, “The : Representing a Progressive/Democratic Islamist Party?,” Islamic Actors And Discourses on Agency, Citizenship, and Civil Society 10 (2016): 323.

160 Ibid.

161 Shehata, “Egypt’s Political Actors Post-2011 Revolution,” 211.

76 people that the allowance of opposition was a thing of the past.162 Even with the government’s repressive efforts, opposition stayed relatively quiet under al-Sisi.

However, instances of controversy including the killing of Shaimaa Al Sabagh during the a march commemorating the fourth anniversary of the revolution and the ceding of two

Egyptian islands in the Red Sear to , brought back large-scale demonstrations led by opposition the likes of which hadn’t been seen since the coup of

2013.163 The administration countered these demonstrations with detentions, prosecutions, and fines, and mobilized the judiciary, parliament, universities, media, the police, and military to support the president and enforce al-Sisi’s resolution.164

Reviving a Broken Economy

During this period of political and social struggle, Egypt’s economic struggles persisted as well. Leading up to 2011, Egypt’s economy showed promising signs of improvement.

Reforms launched by the Egyptian government through the guidelines of the IMF and

World Bank in the mid-2000s to transform Egypt into a market-oriented and private sector focused economy began to take effect, increasing Egypt’s economic growth from

4.5 percent in 2005 to 7.2 percent in 2008. Even during the global recession in 2009-

162 Michele Dunne, “Egypt’s Nationalists Dominate in a Politics-Free Zone,” Carnegie Endowment for International Peace, 15 April 2015, https://carnegieendowment.org/2015/04/15/egypt-s-nationalists- dominate-in-politics-free-zone-pub-59764.

163 “Egypt Policeman Jailed Over Death of Activist Shaimaa Al-Sabbagh,” BBC News, 11 June 2015, https://www.bbc.com/news/world-middle-east-33092907.

164 Shehata, “Egypt’s Political Actors Post-2011 Revolution,” 219.

77

2010, Egypt’s economy still continued to grow at an average of roughly 5 percent.165 This growth was driven not only by domestic economic development, but also by inflows of foreign direct investment. Tourism revenues in Egypt grew from $7 billion in 2005 to

$12.5 billion in 2010. From 2005-2010, the Central Bank of Egypt’s (CBE) international reserves nearly doubled from $19 billion to $35 billion.166 The creation of 2.5 million jobs from 2005-2010 caused the overall and youth unemployment rates to fall to 9.2 percent from 11.5 percent and 25 percent from 34 percent respectively. Egypt’s unemployment remained fairly high predominantly due to the lack of skills of the labor force which were needed for the private sector jobs created by small and medium-sized enterprises (SMEs). While the economy was beginning to show signs of hope, structural flaws such as high rates of youth unemployment, crony , and widening income and wealth inequalities continued to persist. The grievances of the public that came as a result of these issues heavily contributed to the uprising of 2011 and the economic collapse that followed.

With most of Egypt’s labor force taking part in nationwide demonstrations, an abrupt halt of economic output occurred in the beginning of 2011. Once Mubarak was ousted and the SCAF came to power, instead of attempting to tackle the main economic problems, the transitional government took measures to appease the public by increasing

165 “Egypt GDP Growth (Annual%),” International Financial Statistics and Data Files, The World Bank, 2019, https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=EG.

166 Moshin Kahn and Elissa Miller, “The Economic Decline of Egypt After the 2011 Uprising,” Atlantic Council, Rafik Hariri Center for the Middle East (2016): 2.

78 wages, subsidies, and government employment opportunities.167 This further increased

Egypt’s fiscal deficit and set inflation on a dangerous upwards trajectory. At the end of

2011, Egypt’s economic growth fell to 1.8 percent from 5.1 percent the prior year, while unemployment rose to 10.4 percent from 9.2 percent the year prior.168169 When Morsi was elected in June 2012, the Muslim Brotherhood was tasked with ruling a divided nation and dealing with a heavily crippled economy. The administration chose to focus primarily on the political issues that continued to arise, and Egypt’s economic struggles were once again set aside. As a result, the economic picture continued to worsen with economic growth remaining around 2 percent and inflation increasing from 11.6 percent at the end of 2011 to 19.5 percent at the end of 2012.170

After Morsi was ousted, Prime Minister Hazem el-Beblawi and Minister of Finance

Ahmed Galal were appointed by a transformational government led by in

2013 as prominent economists. With their economic expertise, it was hoped by many that they would be able to improve Egypt’s economic situation. However, even with the help of stimulus packages of aid received from , Saudi Arabia, and the UAE, not a great deal of positive headway had been made in tuning Egypt’s economy around during

167 Kahn and Miller, “The Economic Decline of Egypt After the 2011 Uprising,” 3.

168 “Egypt GDP Growth (Annual%).”

169 “Egypt Unemployment, Total (% of Total Labor Force) (Modeled ILO Estimate),” International Financial Statistics and Data Files, The World Bank, 2019, .

170 “Egypt Inflation, GDP Deflator (Annual %),” International Financial Statistics and Data Files, The World Bank, 2019, .

79 the transitional government’s time in power. Inflation declined but remained in the double digits, economic growth continued to remain around 2 percent, and unemployment remained high.171

When al-Sisi took power in June 2014, he did so with a mandate to revive the economy. The government in June launched a five-year Economic Reform Program

(ERP), with the objectives of “restoring macroeconomic imbalances, addressing social inclusion priorities, and achieving high, sustainable, and well-diversified growth.”172 The framework of the macroeconomic policy and structural reform included three fundamental principles:

• First, the government would pursue macroeconomic policies that work in tandem

with long-term economically viable developmental projects with high labor

intensity to improve the quality and accessibility of services offered to the public.

• Second, the government would reform the legal apparatus, and invest in

infrastructure to create a stable and predictable business environment while the

private sector would be increasingly bolstered to resume its leading role in driving

economic growth. This growth model was based on a constructive partnership

between the government and private sector.

171 Khaled Amin, “International Assistance to Egypt after the 2011 and 2013 Uprisings: More Politics and Less Development,” Mediterranean Politics 19, no. 3 (2014): 403.

172 Sahar Nasr, Ministry of International Cooperation, “Arab Republic of Egypt Economic Reform Program (2014-2018) Letter of Development Policy,” 12 November 2015.

80

• Third, the government would ensure that growth is inclusive and sustainable

while reprioritizing public expenditure and generating savings through reforms

which would be partially redistributed to fund social protection programs and

invest in Egypt’s abundant and young human capital. This approach was meant to

strike a balance between macroeconomic stabilization which included pro-growth

fiscal consolidation, and social justice objectives.

The government first initiated reforms focused on stabilizing Egypt’s macroenvironment and addressing fiscal imbalances before beginning the last wave of reforms focused on the promotion of private-sector led growth. This was done to ensure that Egypt’s economy was in a state that made it conducive to investment and private sector participation. By 2017, the government believed the economy had improved enough to incorporate this second wave of reforms.173 The budget deficit had narrowed from 12.5 percent in 2015, to 10.9 percent in 2016, and economic growth had increased from 2.9 percent in 2014, to an average of around 4 percent for 2015-17.174 It was also during this 5-year period of time, that the IMF and World Bank came back into the picture and fiscally assisted Egypt in accomplishing these feats.

173 Sahar Nasr, Ministry of International Cooperation, “Arab Republic of Egypt Economic Reform Program Letter of Development Policy,” 5 November 2017. .

174 “Egypt GDP Growth (Annual%).”

81

The Return of the IMF and World Bank

After the 2011 revolution, the entire government with which the World Bank and IMF formed its SAPs with had been completely disbanded. Additionally, a great deal of uncertainty existed about what exactly the future of Egypt looked like politically or socially and that made the Fund and World Bank, among other aid organizations, wary of involving themselves with the country’s fiscal policy. However, the organizations, which had already invested hundreds of millions of dollars into Egypt, could not ignore its position of economic distress. When they finally did approach Egypt’s government with assistance, they did so with entirely new loan programs and strategies. In 2012, the IMF made attempts to grant Egypt a $4.8 billion stand-by loan, but the government was unable to reach an agreement with the organization and instead turned to other Arab countries for aid, including Qatar and Saudi Arabia. The World Bank was the first of the two to successfully form a fiscal aid agreement with Egypt, and it did so in 2015 with the first of three Fiscal Consolidation, Sustainable Energy and Competitiveness Development Policy

Financing (DPF) projects.175 The objective of this $1 billion loan agreement was to help fund and support the government’s five-year reform agenda launched the year prior. The last two Fiscal Consolidation, Sustainable Energy and Competitiveness DPF loans agreed upon by the World Bank and government of Egypt in 2016 and 2017 for $1.0 billion and

$1.15 billion respectively, were also created for the purpose of continued support of

175 The World Bank, Macroeconomics and Fiscal Management Global Practice, Energy and Extractives, Macroeconomics and Fiscal Management, and Trade and Competitiveness Global Practices, Middle East and North Africa Region, “First Fiscal Consolidation, Sustainable Energy, and Competitiveness Programmatic Development Policy Financing,” 23 November 2015.

82

Egypt’s five-year economic reform plan.176177 This group of loans came as a part of the

World Bank’s proposed Egypt Country Partnership Framework (CPF) which was created to focus on the goals of eliminating extreme poverty and boosting prosperity in a sustainable manner, primarily through improving governance, encouraging private sector job creation, and increasing social inclusion.

While the new loans were granted fairly quickly after the implementation of Egypt’s five-year economic reform strategy in 2014, they came with much more guidelines than previous SAPs.178 Similar to the loan of 2015, when the World Bank and Egyptian government agreed on their first Structural Adjustment Loan in 1991, it was primarily intended to help fund the government’s economic reform program. However, the World

Bank took a much more laissez-faire approach in 1991 with the listing of the main objectives the Bank wanted to achieve within the loan program’s timeline. These objectives were as follows:

176 The World Bank, Energy and Extractives, Macroeconomics and Fiscal Management, and Trade and Competitiveness Global Practices, Middle East and North Africa Region, “Second Fiscal Consolidation, Sustainable Energy, and Competitiveness Programmatic Development Policy Financing,” 29 November 2016.

177 The World Bank, Energy and Extractives, Macroeconomics and Fiscal Management, and Trade and Competitiveness Global Practices, Middle East and North Africa Region, “Third Fiscal Consolidation, Sustainable Energy, and Competitiveness Programmatic Development Policy Financing,” 7 November 2017.

178 The World Bank, “Structural Adjustment Loan between Arab Republic of Egypt and International Bank for Reconstruction and Development,” Loan Agreement, No. 3353-EGT, 22 November 1991.

83

1. Maintenance of a macroeconomic framework consistent with the objectives and

targets of the Government Program, leading to reduction of the budget deficit, the

pursuit of consistent monetary and exchange policies and achievement of balance

of payment viability.

2. Establishment, under the Public Sector Business Law, of holding companies

whose diversified portfolios encompass most of existing public sector companies.

3. Implementation of the Privatization component of the Government Program.

4. Achievement of the targets of the Government Program for price liberalization in

the industrial, energy and agricultural sectors.

5. Reduction of the number of commodities covered by import bans in accordance

with the Government Program.

6. Authorization to the public fertilizers and cement enterprises to sell a sizeable

percentage of their production directly to the private sector.179

After 2011, Egypt continued to suffer from political and social instability which required the World Bank and IMF to include more specific conditions in its agreement in order to have confidence in Egypt’s ability to utilize the funds.180 The World Bank’s

2015 fiscal consolidation loan included a program document that covered various topics as a result, outlined in its Table of Contents:

179 The World Bank, “Structural Adjustment Loan between Arab Republic of Egypt and International Bank for Reconstruction and Development,” Loan Agreement, No. 3353-EGT, 22 November 1991.

180 The World Bank, Macroeconomics and Fiscal Management Global Practice, Energy and Extractives, Macroeconomics and Fiscal Management, and Trade and Competitiveness Global Practices, Middle East and North Africa Region, “First Fiscal Consolidation, Sustainable Energy, and Competitiveness Programmatic Development Policy Financing,” 23 November 2015.

84

1. The macroeconomic policy framework of the loan, including recent economic

developments as well as the macroeconomic and debt sustainability outlook for

Egypt.

2. A synopsis of the government’s proposed 2014 economic reform plan, which

covered each of its main objectives (macro-fiscal stabilization, private sector-led

growth, transparency and accountability, and social and economic inclusion) in

detail.

3. An outline of the plan itself, focusing on its link to the government reform

program, prior actions taken by the government to assess the problems the World

Bank identified and the results of those actions, and the planned collaboration

with different development partners. In this section, the World Bank included the

rationale for the introduction of particular policies and laws by the DPF and

explained how the policies served as a solution to the identified problem, before

producing quantitative targets and objectives for the policy to accomplish in the

allotted period.

4. Other design and appraisal issues, such as the social impact and the intended

effects on poverty, public financial management, disbursement and auditing

aspects, as well as monitoring, evaluation and accountability.

5. Lastly, the document covered a brief summary of the risks and mitigation of the

loan and its policies. This section included risks such as geopolitical, governance,

and macroeconomic challenges.181

181 The World Bank, Macroeconomics and Fiscal Management Global Practice, Energy and Extractives, Macroeconomics and Fiscal Management, and Trade and Competitiveness Global Practices, Middle East

85

In total, this information spanned across over 40 pages of text and 124 topical paragraphs.

The 1991 loan did not produce a similar document until the release of its Implementation

Completion Report in 1996, which only included half as much content as 2015 program document.182 Multiple figures and tables of Egypt’s macroeconomic data were also placed throughout the report and in an annex to provide more in-depth economic analyses and further explain how the policies were expected to improve Egypt’s economic situation.183 Prior loan documents from the World Bank included much more brief quantitative economic analyses.

The Second and Third Fiscal Consolidation, Sustainable Energy, and

Competitiveness Programmatic DPF in 2016 and 2017 respectively, had very similar traits to the First loan of the group.184185 The main differentiating factor was that there was larger focus on the results of prior actions, as that section now included the results of

and North Africa Region, “First Fiscal Consolidation, Sustainable Energy, and Competitiveness Programmatic Development Policy Financing,” 23 November 2015.

182 The World Bank, Country Operations Division, Middle East and North Africa Region, “Structural Adjustment Loan,” Implementation Completion Report, No. 3353-EGT, 22 January 1996.

183 The World Bank, Macroeconomics and Fiscal Management Global Practice, Energy and Extractives, Macroeconomics and Fiscal Management, and Trade and Competitiveness Global Practices, Middle East and North Africa Region, “First Fiscal Consolidation, Sustainable Energy, and Competitiveness Programmatic Development Policy Financing,” 23 November 2015.

184 The World Bank, Energy and Extractives, Macroeconomics and Fiscal Management, and Trade and Competitiveness Global Practices, Middle East and North Africa Region, “Second Fiscal Consolidation, Sustainable Energy, and Competitiveness Programmatic Development Policy Financing,” 29 November 2016.

185 The World Bank, Energy and Extractives, Macroeconomics and Fiscal Management, and Trade and Competitiveness Global Practices, Middle East and North Africa Region, “Third Fiscal Consolidation, Sustainable Energy, and Competitiveness Programmatic Development Policy Financing,” 7 November 2017.

86 the incorporation of prior policies set forth by the World Bank. After the Third Fiscal

Consolidation DPF, the economic reform DPFs were continued through the World

Bank’s Privat Sector Development for Inclusive Growth DPF in 2018. This DPF also took the format of the prior three loans, with the focus of the agreements centered upon the achievements and overall progression of Egypt’s economic reform program and the

World Bank’s CFP.

In general, it can be stated that before 2011, fiscal involvement with Egypt by the

IMF was similar to that of the World Bank in the sense that it lacked direction in comparison to its involvement after the revolution.186 In 2012, the IMF agreed on a $4.8 billion stand-by arrangement loan at the staff-level to support Egypt’s economic reform through various proposed actions including the reformation of energy subsidies and taxation. However, with continued political and social instability it was difficult for the

Egyptian government to truly focus on the economy, and as a result the Egyptian government and IMF never came to an agreement on the $4.8 billion loan’s policies. The

IMF and Egypt did not come to an agreement on a loan program until a $12 billion 3-year

Extended Fund Facility (EFF) in 2016, from which Egypt immediately drew $2.75 billion total.187 This EFF was granted to support Egypt’s economic reform program that began

186 “IMF Reaches Staff-Level Agreement with Egypt on a US $4.8 Billion Stand-By Agreement,” International Monetary Fund, 20 November 2012, https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr12446.

187 “IMF Executive Board Approves US $12 Billion Extended Arrangement Under the Extended Fund Facility for Egypt,” International Monetary Fund, 11 November 2016, https://www.imf.org/en/News/Articles/2016/11/11/PR16501-Egypt-Executive-Board-Approves-12-billion- Extended-Arrangement.

87 two years prior. The fact that the IMF did not publicize its SAPs prior to 2011 makes it difficult to compare its loan agreements. However, the fact that the IMF made multiple publications and press releases each year from 2016-2019 in relation to the development of its EFF, shows in itself that it took a more conscientious approach. Since the EFF’s establishment, the IMF has released four different reviews and extended arrangements since 2016: the first in July 2017, the second in January 2018, the third in July 2018, and the fourth in October 2018.188189190191 For its second review of the EFF, the IMF released a document that represented a similar structure to the World Bank’s 2015-2019 loan program documents, with a data led focus on the progression of policies initiated by the loan and Egypt’s economic reform program.

Conclusively, both the IMF and World Bank took noticeably different approaches to aiding Egypt’s fiscal development after the events of 2011. The volatility and

188 “IMF Reaches Staff-Level Agreement for Completion of the First Review of Egypt’s Extended Fund Facility,” International Monetary Fund, 12 May 2017, https://www.imf.org/en/News/Articles/2017/05/12/pr17164-imf-reaches-staff-level-agreement-for- completion-of-the-first-review-of-egypt-eff.

189 “Arab Republic of Egypt : 2017 Article IV Consultation, Second Review Under the Extended Arrangement Under the Extended Fund Facility, and Request for Modification of Performance Criteria- Press Release; Staff Report; and Statement by the Executive Director for the Arab Republic of Egypt,” International Monetary Fund, 22 January 2018, https://www.imf.org/en/Publications/CR/Issues/2018/01/22/Arab-Republic-of-Egypt-2017-Article-IV- Consultation-Second-Review-Under-the-Extended-45568.

190 “Egypt: IMF Executive Board Completes Third Review under the Extended Fund Facility (EFF),” International Monetary Fund, 2 July 2018, https://www.imf.org/en/News/Articles/2018/07/02/pr18271- egypt-board-completes-3rd-review-under-eff.

191 “IMF Team Reaches Staff-Level Agreement on the Fourth Review for Egypt’s Extended Fund Facility,” International Monetary Fund, 31 October 2018, https://www.imf.org/en/News/Articles/2018/10/31/pr18405-imf-team-reaches-staff-level-agreement-on- the-fourth-review-for--eff.

88 uncertainty in Egypt politically, socially, and economically, required for the aid organizations to take a more direct role, and luckily Egypt’s reformation program facilitated their ability to do so. However, even with a plan already put in place, the aid organizations made a point to do their own analysis and outline their own objectives separately in detailed synopses. In addition to more explicit guidelines and goals, the agreements made with the aid organizations after 2011 included both political and social objectives alongside their economic policy proposals. Even with the proposed objectives, the IMF and World Bank carry a lot less weight in policy decision for Egypt than they have in the past as Egypt’s economic plan serves as the ultimate guide for the policies put in place by the international aid organizations. Due to repressive efforts made by the government against its citizens throughout Mubarak’s rule and in the years following the

2011 uprising, Egypt landed itself in multiple instances on the Human Rights Watch list.

Additionally, the government had been known to operate in a corrupt manner regarding its implementation of privatization. Therefore, a key part of the IMF’s and World Bank’s loan conditions was to improve transparency across the government and private sector, as it was mentioned numerous times throughout loan documents and their published reviews. A lack of transparency in the deals prior to this made it very difficult for the aid organizations in the past to fully understand where exactly the aid was going and how effective it was in improving the problem.

Both the IMF and World Bank relations with Egypt are still ongoing. The IMF

Board’s Fourth Review of its EFF was released in early 2019 with multiple metrics

89 including GDP surplus on track for meeting the loan’s objectives.192 The World Bank has continued its CFP through the launch of a Private Sector Development for Inclusive

Growth DPF, a $1 billion loan granted in 2018 to support the “Egypt Takes off Program” launched by the Egyptian government. 193 While Egypt has been able to resume healthy growth, recording 4-5 percent annual GDP increases over the past three years, it still suffers from issues including double digit unemployment rates and high inflation.194195196

As Egypt continues to engage in loan agreements with the World Bank and IMF, it continues to increase its already high debt position. If the IMF and World Bank continue to maintain transparent communication with Egypt and hold its government to the economic policies it creates, there is a great chance Egypt is able to make further headway in improving it economic standing. But if the government strays away from its objectives, taking on these loans will ultimately only further indebt them to international markets.

192 “IMF Executive Board Completes Fourth Review Under the Extended Fund Facility (EFF),” International Monetary Fund, 31 October 2018, https://www.imf.org/en/News/Articles/2019/02/05/pr1933- egypt-imf-exec-board-completes-4th-review-extended-fund-facility.

193 The World Bank, Energy and Extractives, Macroeconomics and Fiscal Management, and Trade and Competitiveness Global Practices, Middle East and North Africa Region, “Private Sector Development for Inclusive Growth Development Policy Financing,” 13 November 2018.

194 “Egypt GDP Growth (Annual%).”

195 “Egypt Unemployment, Total (% of labor force) (Modeled ILO Estimate).”

196 “Egypt: Inflation Rates Increase Again Reaching 12.2 Percent,” Middle East Monitor, 11 February 2019, https://www.middleeastmonitor.com/20190211-egypt-inflation-rates-increase-again-reaching-12-2- per-cent/.

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Conclusion

Multiple conclusions can be drawn from Egypt’s economic development over the last half century, and in particular the impact of the IMF and World Bank through their fiscal involvement with the nation. These conclusions include political, economic, and social components that relate to the two institutions’ role in restructuring Egypt’s economy.

They are also a product of the analysis of the critiques of IMF and World Bank involvement, specifically regarding their structural adjustment programs.197

The results of the findings discussed in the prior chapters can be summarized into the following five points. First, Gamal Abdel Nasser’s reformist policies repeated many of the mistakes seen in Mehmet Ali’s defensive developmentalism strategy, ultimately paving the way for the inevitability of needed foreign investment once Nasser left office.198 This was due to the fact that Import Substitution Industrialization (ISI) initiatives and other socioeconomic policies imposed upon the Egyptian economy resulted in the incurrence of a debt balance that the country could not contain on its own.199

Second, while Anwar Sadat’s “Infitah” policy was successful in its ability to attract foreign investment, it did so at the detriment and expense of development in

Egypt’s agricultural and local industrial sectors. A shift in the government’s focus away

197 Lofgren, “Economic Policy in Egypt,” 415.

198 Craissati, The Political Economy of Nasserism and Sadatism, 85-128

199 Waterbury, The Egypt of Nasser and Sadat, 90.

91 from being a cotton exporter resulted in political leaders turning a blind eye to the corruption and domination of agricultural capitalists which vastly increased the wage gap of the rural and urban Egyptian populations in the 1970s. Regarding local industry, laws that pushed for the sudden privatization of local companies which were formerly state-led led to various abuses of power by executives.200 This in addition to the tariff structure created by policies encouraging foreign trade had devastating effects on local industry.

Third, the IMF and World Bank experienced a great deal of difficulty in successfully implementing their structural reforms due largely in part to the organizations’ unfamiliarity with Egypt’s economic sectors and ongoing political and social headwinds that likely weren’t considered to the capacity they should have been.

This difficulty is exhibited in multiple Implementation Completion Reports in which international aid institutions expressed delays in implementing initiatives due to particular events or economic frameworks.201202203 As a result of this, while deemed successful by the leaders of the international aid institutions, fiscal policy adjustment programs initiated by the IMF and World Bank in the late 1970s and throughout the

200 Hussein, “Rationalizing Public Repression” 127.

201 The World Bank, IDF Regional Projects Department, Europe, Middle East and North Africa Regional Office, “Third and Fourth Development Industrial Bank Projects,” Project Completion Report, No. 1533- EGT and 1804-EGT, 27 June 1988.

202 “The World Bank, Natural Resources, Water and Environment Division, Middle East and North Africa Regional Office, “Second Agricultural Development Project,” Implementation Completion Report, No. 2561-EGT, 20 March 1995.

203 The World Bank, Industry and Energy Operations Division, Europe, Middle East and North Africa Regional Office, “Fifth Development Industrial bank Project (DIB V),” Project Completion Report, No. 2074-EGT, 3 October 1991.

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1980s, had little impact on Egypt’s economic output or its rising inflation and unemployment metrics until the 1990s.

Fourth, Egypt’s 2011 Revolution and its impact on the Egyptian economy led to a shift in IMF and World Bank involvement in Egypt’s fiscal policy. The volatility of and uncertainty surrounding Egypt politically, socially, and economically once the international aid organizations resumed talks with Egypt forced them IMF and World

Bank to take a more direct role.204 President Abd al-Fatah al- Sisi’s five-year Economic

Reform Program (ERP) provided much more transparency to the organizations and allowed them to plan a more efficient and effective strategy to tackle the problems facing the Egyptian economy.205206 However, the pace at which Egypt is able to incorporate many of the stipulations associated with the most recent of the loans granted by the IMF and World Bank, shows that their relationship is still far from perfect.

Fifth, while progress has been made, IMF and World Bank fiscal initiatives have proven to be only temporary fixes for deep rooted structural problems within Egypt’s

204 The World Bank, Macroeconomics and Fiscal Management Global Practice, Energy and Extractives, Macroeconomics and Fiscal Management, and Trade and Competitiveness Global Practices, Middle East and North Africa Region, “First Fiscal Consolidation, Sustainable Energy, and Competitiveness Programmatic Development Policy Financing,” 23 November 2015.

205 The World Bank, Energy and Extractives, Macroeconomics and Fiscal Management, and Trade and Competitiveness Global Practices, Middle East and North Africa Region, “Second Fiscal Consolidation, Sustainable Energy, and Competitiveness Programmatic Development Policy Financing,” 29 November 2016.

206 The World Bank, Energy and Extractives, Macroeconomics and Fiscal Management, and Trade and Competitiveness Global Practices, Middle East and North Africa Region, “Third Fiscal Consolidation, Sustainable Energy, and Competitiveness Programmatic Development Policy Financing,” 7 November 2017.

93 economy. The granting of loans by the international aid organizations has helped Egypt in multiple instances stay afloat, but it has also further indebted the country without entirely fixing many of the issues outlined by the IMF and World Bank in their first SAL projects. These issues are centered upon the fact that Egypt depends on imports heavily for production and therefore lacks a strong industrial sector. With exports making up such a small portion of its economy, Egypt has depended on sources such as workers’ remittances, tourism, and foreign direct investment to keep a strong currency to purchase the aforementioned imported production inputs with. The disagreement between the

Egyptian government and the aid organizations on what the best way is to fix these issues is part of the reason why many of the most recent initiatives outlined in the 2016 loan have not yet been put into place over two years later.

In November 2018, Egypt’s Finance Minister Mohamed Maait stated that the country is now in a position where they will not need funding from the IMF.207 He also stated that cooperation is still a possibility moving forward, but that there is no need for the crafting of another loan agreement. It is not certain whether or not cutting ties with the international financial institutions is the best move for Egypt to take at the moment.

The route that the current regime takes after the ongoing loan deal with the IMF and

World Bank ends in 2019 is unknown. But if one looks at how history has repeated itself

207 “Egypt Won’t Seek Further Funding From IMF When Program Ends,” Bloomberg, 27 November 2018, https://www.bloomberg.com/news/articles/2018-11-28/egypt-says-won-t-seek-further-funding-from-imf- when-program-ends.

94 in the case of Egypt, there is a chance that with a political and/or social impetus, the economic cycle of Egypt will be reinitiated.

95

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