In the midst of the excitement about our historic revolution, we as Egyptians are naturally facing challenges around our national budget. Should we accept loans from international financial institutions or should we seek alternative sources of financing? Should we accept loans with strings attached? If so, what should those strings be?
Transparency and borrowing
Sunday ,17 July 2011
Without advocating for or against loans from the International Monetary Fund (IMF) and the World Bank (or from any other donor for that matter), I’d like to stress the importance of closely examining the terms of any loan or grant regardless of its source. It would be a big mistake to treat all loans that come with conditions as if they are equally bad.
The news about the Egyptian government rejecting a $3 billion loan from the IMF last month because its terms were not compatible with Egypt's national interests ought to raise our curiosity about what those terms actually were. When negotiations for this loan started, the IMF and the Egyptian government both stated that the loan would contribute to the national development plan set by the government and would not require any special economic measures outside of the policies the government was already proposing. The loan was also supposed to be given to Egypt at a low interest rate. The government’s subsequent refusal of IMF assistance raises doubts about whether it was indeed transparent about the terms of the loan or whether they changed at some point. We, as citizens, have the right to know these things, especially in this transitional period.
While the IMF loan has been rejected, it remains unclear how the Egyptian government will deal with possible loans from the World Bank.
The conditions attached to any loan or grant, regardless of its source, should be made public. It’s rather naïve to expect any donor to give money without conditions. Some loans may come with clear requirements for changes in macroeconomic policy, while others might interfere with the political process. Other terms may include mechanisms to ensure transparency and accountability with regards to the money spent.
Many civil society organizations around the world have and continue to work diligently to pressure large donors to make loans and grants contingent on governments adopting certain policies, from guaranteeing social and environmental rights to ensuring mechanisms for citizens to participate in setting national development plans and enabling them to hold their governments accountable for any misuses of the money taken in their name.
In the last decade, these civil society groups have achieved some success. The World Bank, for example, has adopted policies that require borrowing governments to hold consultations with stakeholders -- especially local communities that are directly affected -- for certain types of Bank-funded projects. The Bank also requires proper compensation of communities who face the threat of displacement or whose sources of income may be affected by a Bank-funded initiative.
Last year, the Bank adopted the most progressive -- although still imperfect -- access to information policy among all international institutions that makes most bank-funded project documents available online (though the disclosure of certain types of documents require the approval of borrowing governments). With the latest events in the Arab World and the unveiling of high-scale corruption cases in Egypt and Tunisia that might have involved money taken from the World Bank, there is now even more pressure on the Bank to ensure the proper implementation of its polices and to adopt additional measures on its loans to ensure that those new loans will not be misused again.
If the recent corruption cases in Egypt are one reason to require that the Bank adopt more accountability measures, having a transitional government negotiating our future debts gives us even more reason to demand that the Bank ensure meaningful public engagement in the negotiations over these loans since they will lock future Egyptian governments into long-term policy and debt-repayment commitments. The Bank already possesses some mechanisms to do this, while our government does not.
The World Bank loan that is reportedly being negotiated with Egypt falls within a special category of funds -- known as Development Policy Loans (DPLs) -- that goes directly to a government's national budget. According to official statements, this money would most likely be used for good governance, like a similar loan the Bank approved for Tunisia on 21 June, 2011. Before any loan agreements are concluded, the Bank must do a few things that are already in accordance with its current DPL regulations.
First, the Bank must insist on quality consultations with representatives from all different sectors of Egyptian society, not just the private sector and policy makers.
Second, the Bank must insist that the Egyptian government approve the early disclosure of the final program document (i.e. before the Bank's Board of Directors approve the loan) to give Egyptians time to study it and voice any concerns.
Third, the Bank must push the Egyptian government to disclose its national budget, a requirement for all governments receiving DPLs (though the Bank has set no specific standards for this disclosure). We need to see our complete budgets (as opposed to summarized versions), as well as an audited budget of the previous year(s) to ensure full budget accountability.
Some may retort that these recommendations represent an infringement on Egypt's state sovereignty. If so, then it's time Egyptians collectively define the limits of that sovereignty, lest it be used an excuse to block greater transparency, accountability and public participation.