INSTITUTIONAL IMPACT ON EGYPT'S ERSAP

By: Mohamed Hassan Youssef

 
Egypt suffered severe economic problems during the 1950s to late 1980s. This led the Government of Egypt (GOE) to conclude an agreement with the International Monetary Fund (IMF) and World bank known as Economic Reform and Structural Adjustment Program (ERSAP). Due to some bureaucratic obstacles, the reforms were either distorted from their proper course or not applied in due time. The ERSAP, therefore, has not yielded fruitful success and has led to some social problems, namely increases in Egypt's rates of poverty.

Egypt, as Sullivan argues, suffered from severe macro-economic imbalances, the main of which were ballooning deficits in budget and balance of payments during the period of 1950s until the late 1980s.[1] Most of these problems resulted from the government's considerable reluctance in pursuing the proper and required economic reforms for fear of repetition of 1977 riots due to their social implications (Sullivan, 1999). The economy was mainly dependent on rents such as Suez Canal fees, oil earnings, worker remittances, tourism, foreign debts and grants (Bromley & Bush, 1994). This provides a continual flow of funds that also delayed the urgency to adopt such reform policies. In addition, the absence of a clear strategic vision concerning the path the country should follow to pursue the reforms (whether socialist, capitalist or Islamist) was evident (Sullivan, 1999). This gave room to IFIs (particularly IMF and USAID) to impose their visions on the reform policies adopted in Egypt from early 1990s (Mitchell, 1999).

As background, the GOE in May 1991 concluded agreements with the IMF and the World Bank known as ERSAP, which aimed at rectifying the macroeconomic imbalances. These agreements assumed that economic growth and development were best secured by allowing the market to reveal the comparative advantage that the country enjoyed. Once prices were free and institutional barriers removed, Egypt, or rather its private sector agents, would discover their comparative advantage through the market. Given this opportunity, the supply-side of the economy would respond appropriately. The result of such action would be minimized socio-economic inequalities (Bromley & Bush, 1994).[2]

The ERSAP undoubtedly yielded some initial success according to Richards and Waterbury (P: 250), while Mitchell argues whether they are real and direct (P: 456). Economic policy does not work in vacuum. The surrounding bureaucratic environment plays a vital role in any reform process. As the administrative apparatus is responsible for pursuance and application of the proposed reforms, it maintains the capacity to facilitate or hinder them. As for the Egyptian case, the administrative body exerted all its efforts to delay the pace of reform process. As top-level bureaucratic officers had their own self interests which might contradict with the objectives of ERSAP and protect their positions, they fought for not applying the reform policies, or even delay them (Sullivan, 1999). They also cannot take serious decisions for fear of responsibility.
The other striking element is the absence of a clear vision for the reform process among different ministries in Egypt, as short term policies were the dominant factor in this regard. The absence of political will for reform accompanied with the reluctance of the bureaucratic apparatus to act were responsible for delaying the reform process or at the least making it on a gradual basis. The inter-ministerial struggles illustrate how each ministry tried not to render any of its powers or responsibilities to other ministries (Sullivan, 1999).

The third element was the struggle between the IFIs administrative staff (mainly USAID officials) and the Egyptian bureaucrats. The USAID officials insisted on rapid and extensive changes that must be adopted by the Egyptian government, while the Egyptian bureaucrats were convinced of the gradual application of reforms due the so-called special nature of Egyptian society (Sullivan, 1999). As IFIs have a certain prescription that is described for all countries regardless of the surrounding circumstances of each specific country, some experts[3] also question the real benefits of trade liberalization and tariff cuts for developing countries. Were these measures enough to guarantee distribution of benefits between advanced and developing countries? This typically explains the reasons behind reluctance of the Egyptian bureaucracy to pursue the reforms suggested by these institutions.

The other problems of the administrative body in Egypt greatly hampered the reforms. The lack of transparency and spread of corruption among members of this body (Richards & Waterbury, 2008) were evident and publicized. This led to negative practices for and serious implications on the privatization program.
Due to all these obstacles on applying the ERSAP program, the program has only partially achieved its proposed goals. Although it was initially designed to generate an export boom, the main achievement was only a real estate explosion (Mitchell, 1999). The expected effect of any reform program is to create new projects generating new job opportunities, which has not happened in Egypt. Most investments flowed to infrastructure projects (Richards & Waterbury, 2008), and Toshka also absorbed a great deal of such funds. The government abandonment of full employment policy for university graduates, coupled with cuts in public spending, led to spread of poverty among the vulnerable groups in the society.

Despite the very high economic growth rate of 7.1 in 2007 according to IMF, the people in Egypt do not feel the fruitful results of such growth. The main reason is the inequality in distributing the resulted gains. Egypt still faces the same problems of high inflation rate (19 per cent in the monthly average in May 2008 according to CAPMAS data) and high gross domestic public debt as percent of GDP (67.5 per cent in June 2007 on annual basis)[4].

In conclusion, the main obstacle to reform in Egypt, therefore, may not be economic but institutional. Human development is a key element in any reform program (Sullivan, 1999), as high illiteracy rate leads to greatly lower the skills of labor (Richards & Waterbury, 2008). The key overhaul of this situation, thus, is to provide suitable training for bureaucrats. Moreover, some suggest a political revolution that may lead to an administrative reform in order to gain the desired results of economic reform (Sullivan, 1999). Without these two measures, Egypt will hardly gain any economic success.
 
REFERNCES
Bromley, Simon & Bush, Ray. 1994. "Adjustment in Egypt? The Political Economy of Reform". Review of African Political Economy 60 (June): 201-213.
Korayem, K. 1997. Egypt's Economic Reform and Structural Adjustment (ERSAP). Cairo: ECES.
Lofgren, H. 1993. "Egypt's Program for Stabilization and Structural Adjustment: An Assessment". Cairo Papers in Social Science, 16(3): 20-37.
Mitchell, Timothy. 1999. "No Factories, No Problems: The Logic of Neo-Liberalism in Egypt". Review of African Political Economy 26/82 (December): 455-468.
Richards, A & J. Waterbury. 2008. "Re-mixing the Market and the State" in A Political Economy of the Middle East: State, Class, and Economic Development, 3rd edition. Boulder Colorado: Westview. (pp: 248-252)
Sullivan, Denis. 1990. "The Political Economy of Reform in Egypt". International Middle East Studies 22/3 (August): 317-334.


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[1] For a complete picture for the bleak economic situation during this period, see also:
- Richards, A & J. Waterbury, 2008. "Re-mixing the Market and the State" in A Political Economy of the Middle East: State, Class, and Economic Development, 3rd edition. Boulder Colorado: Westview. (pp: 248-252)
- Mitchell, Timothy. 1999. "No Factories, No Problems: The Logic of Neo-Liberalism in Egypt". Review of African Political Economy 26/82 (December): 455-468. (pp: 457-459).
[2] For details of this program, see:
- Korayem, K. 1997. Egypt's Economic Reform and Structural Adjustment (ERSAP). Cairo: ECES.
- Lofgren, H. 1993. "Egypt's Program for Stabilization and Structural Adjustment: An Assessment". Cairo Papers in Social Science, 16(3): 20-37.
[3]  Dr. Mustafa Kamil ElSaaid, an ex-Minister of Economics, Al-Masry Al-Youm, a daily Egyptian newspaper, 30/6/2008.
[4]  Ministry of Finance, The Financial Monthly, May 2008. Vol. 3, No. 7. (P: 4).