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Rehash of failed policies for Arab states?

13 June 2011


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As revolutionary movements sweep the Arab world, the World Bank and the IMF have taken a lead in international economic engagement in the Middle East and North Africa region. But critics have warned of the dangers of locking transitional governments into long-term loans with economic conditionalities that may perpetuate the flawed development model that contributed to the crisis in the first place.

In early June the IMF announced a $3 billion loan to support Egypt’s economic programme for 2011-12, which the IMF praised as “a first step to laying the foundation for a more inclusive private sector-led economic growth”. The loan has yet to be officially approved by the IMF board and the conditions attached to it are still unknown. A week earlier, at a summit in France at the end of May, the G8 announced that multilateral development banks, including the World Bank, would provide over $20 billion from 2011 to 2013 to Tunisia and Egypt, which had their long-serving rulers overthrown earlier this year. This is on top of bilateral deals promised by the United States and by wealthy economies in the European Union and the Arab Gulf, which could amount to another $20 billion. However, it is not clear how much of the pledges are actually new nor how much are loans as opposed to grants. Just days before the summit the Bank had already announced up to $6 billion in loans for the two countries, although it was not clear if the money was part of the G8 pledge. This followed the launch in April of a $1 billion infrastructure fund for the Arab region – with a focus on regional projects and public-private partnerships – backed by the Bank and its private sector arm, the International Finance Corporation, along with the Islamic Development Bank.

Dr. Adam Hanieh, from the School of Oriental and African Studies in London, argued that the “most important point to note about the aid packages promised to Egypt is that they do not in any way represent a break from … previous economic strategies for the region.” Over half of Bank aid to the region goes to financial and private sector development, according to the German news agency Deutsche Welle, while figures from US NGO Bank Information Center (BIC) show that education, health and other social services have made up on average only 6.5 per cent of total Bank lending in the past four years.

Angelina Jarrouj of BIC noted in an article that many experts argue that privatisation programmes and market-based approaches pushed by the Bank and the IMF in the region in the 1990s led to mass layoffs of public workers, a limited role for unions and concentration of wealth. This contributed directly to the rise of unemployment, poverty, inequality and corruption, which sparked the current crisis.

Noha El Shoky, an academic and development professional from Egypt, added that the Bank’s focus on private sector development and its push for aggressive open market policies proved damaging to small Egyptian entrepreneurs. Moreover, Bank-funded public programmes allowed the government to inflate figures of new job opportunities, while in reality only temporary labour intensive employment was created. “Development work implemented through Bank funding distorted markets and allowed the government to inflate ‘false and superficial’ progress, which encouraged the continuation of a dysfunctional system and perpetuated ineffective socio-economic strategies”, she said.

This ultimately led to hidden unemployment and deteriorating socio-economic standards instead of proclaimed social development achievements. For El Shoky, “IMF and Bank loans promoting neoliberalism allowed for the concentration of both political and economic power in the hands of a few, who systematically marginalised, oppressed and tortured Egyptians until they revolted.”

In a tacit recognition of the Bank’s past failings in the region, Bank president Robert Zoellick gave an early April speech admitting that “now it may be time to invest in the private, not-for-profit sector – civil society”. However, rather than examining criticisms of the way the Bank may have undermined opportunities for public engagement on economic policy in the region, he focussed instead on expanding the Bank’s role. He examined “whether the Bank needs new capabilities or facilities that could leverage support from countries, foundations, and others to strengthen the capacity of [civil society organisations] working on accountability and transparency in service delivery.”

Another concern regarding the new Bank and IMF loans is the countries’ already bulky foreign debts: Egypt has a total external debt of $30 billion, while Tunisia owes $15 billion. UK NGO Jubilee Debt Campaign has called for the unconditional cancellation of all of Egypt’s and Tunisia’s debt run up by their former rulers that is found to be unjust. The group also “called for the IMF not to use the toppling of dictators Mubarak and Ben-Ali to impose ‘free market’ conditions on the North African countries.”