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Pressure Mounts on Cairo to Reform. President Mubarak hopes gradual change will satisfy International Monetary Fund. EGYPT'S ECONOMY

By Jane FriedmanSpecial to The Christian Science Monitor / March 21, 1989



CAIRO

THE Egyptian government plans to present the Bush administration soon with a report on economic reforms Cairo has implemented in the last two years. By making its case, Egypt hopes to unblock withheld American aid and convince Washington it deserves new standby credit from the International Monetary Fund (IMF), and to relieve eventually a crisis in foreign currency reserves. Revenue from Egypt's main sources of foreign currency - especially petroleum - has shrunk. But Cairo hasn't persuaded creditor nations and the IMF to provide additional aid and a new agreement to reschedule part of its $43 billion foreign debt. The reason: Donors doubt Egypt has tried seriously enough to implement the desired reforms to merit more help.

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Meanwhile, demand for grain and other food imports has been growing with the approach of the holy month of Ramadan, a time of daylight fasting and nighttime feasting, which begins around April 7. These imports add to the strain on Egypt's limited foreign currency reserves.

Arrears to creditor nations have been growing as well. Between France and the United States, they total close to $1 billion.

On March 8, officials in Washington announced that two years' worth of cash aid - worth $230 million - was being withheld pending Egypt's agreement with the IMF on a package of economic reforms.

Informed sources in Cairo said that's not the sole measure the US has taken to coax Egypt toward reform. One source pointed out that new loans for food purchases were recently withheld when the Americans discovered Egypt was in arrears for $60 million.

And the French government, according to a well-informed European diplomat, has delayed the implementation of a new aid protocol because Egypt had not paid off overdue loans to the French. French food aid has also been suspended.

Perhaps the major threat facing Egypt is the Brooke Amendment, which stipulates that if any debt payment is 365 days late, all US aid should be cut off. By mid-July, the Brooke Amendment comes into effect, and Egypt will have to begin servicing its $4.5 billion debt to the US. The only way to avoid this is to conclude the reform package with the IMF. That will pave the way for a new debt rescheduling agreement with creditor nations.

``We don't run the country on the Brooke Amendment deadline,'' said a high-ranking government official who insisted on anonymity. ``But the situation is urgent. Oil prices will not increase. The cost of grain imports is rising.''

The Egyptian government, sanguine about its need to reach an agreement with the IMF, is taking a two-pronged approach. First, it hopes to persuade creditor nations that it has been serious about economic reform.

The way to the IMF, Egypt hopes, is through its influential members. President Hosni Mubarak returned from a European tour on Saturday. Initial assessments of the trip in the Egyptian press said that President Mubarak succeeded in getting the backing of France and Germany. This spring, Mubarak is set to meet with President Bush.

Second, it hopes to reach a lenient agreement with the IMF. The government fears that sudden price increases, bringing subsidized items up to world-price levels, will trigger mass unrest similar to that in Venezuela and Algeria.

``We have responsibilities we cannot ignore,'' said the government official, ``social problems we cannot ignore.'' In its report to the US, the government will point out that it has raised gasoline, electricity, and some food prices in the last few months.

And, the government official said, ``We're trying to temper economic reform with supply-side measures to keep unemployment down.'' He mentioned such policies as land reclamation, the creation of industrial parks, and encouragement to the private sector. ``IMF programs are simple to grasp. You raise prices and demand drops. You raise taxes and income drops. But the programs don't always achieve what they're supposed to.''

In February, Mubarak met with the head of the IMF, Michel Camdessus, in an effort to persuade him that the slow road to reform was best. In advance of the meeting, Egypt set a new set of reform proposals, according to diplomats, that included a 2 percent cut in the budget deficit this year, hikes in the prices of government services and electricity, rationing of food subsidies, and a minimal increase in interest rates.

Diplomatic sources say they doubt the Fund will bend for Egypt, as it did in May 1987 when it granted unusually easy terms to Cairo. Six months later, the fund concluded that Egypt had violated the accord and it suspended further standby credits.

``The IMF wants a commitment to a schedule with quantified targets and figures,'' a Western diplomat said. ``The fund wants to bind the hands of the Egyptians so they can't run away.''