With economy in free fall, Egypt asks IMF for $4.8 billion
08/22/2012 12:00 AM
09/21/2012 5:42 PM
Facing an angry public spurred by a failing economy, Egyptian President Mohammed Morsi formally requested a $4.8 billion emergency loan from the International Monetary Fund on Wednesday during a meeting with its president in Cairo.
IMF chief Christine Lagarde’s two-day visit seemed to mark the organization’s recognition that Morsi was Egypt’s undisputed leader, no longer part of a power-sharing agreement with the military. Lagarde stood side by side with the Morsi-appointed prime minister, Hesham Kandil, and said the IMF hoped to finalize the terms of the loan by December.
Egypt and the IMF have been locked in negotiations for months on the loan, which a year ago was thought likely to be $3.2 billion. But with the economy struggling in almost every sector – tourism and foreign investment have plummeted while unemployment and food prices keep rising – the amount needed has risen. Basic services, such as water and electricity, are now inconsistent in every part of the country. With Egypt spending down its cash reserves, currency devaluation is feared.
Lagarde said the IMF was willing to help the country pass through a difficult period.
“I took note of their strategy and ambition for Egypt’s economic and social future, and I assured them of our continued commitment to support Egypt and its people during this historic period of transition,” she said.
Although officials are still working out specifics, Kandil said he expected the term of the loan to be five years and the interest rate 1.1 percent.
The IMF “will accompany Egypt as it undertakes this challenging journey,” Lagarde said, adding that a technical team will visit Egypt next month to work with authorities on other financial support from the IMF.
Economists paint a dire picture of Egypt’s economic condition. Since the 2011 revolution, the country’s foreign reserves have dropped by more than 50 percent. Rashad Abdo, a finance professor at Cairo University, warned that Egypt could struggle to provide basic services, spurring further unrest.
“This loan will raise Egyptian foreign currency reserves,” he said. “The disadvantage is that it could also lead to inflation.”
In February, when Egypt last attempted to draft a loan plan, the Muslim Brotherhood, the basis for Morsi’s political support, denounced the terms of the proposed agreement. Now, as president, Morsi has endorsed a very similar plan.
Meanwhile, Morsi announced that he’ll visit the United States on Sept. 23. It will be his third foreign trip, however: He plans to visit China and Iran later this month.
Special correspondent Hassan El Naggar contributed to this report.
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