IMF gives Egypt $3 billion loan. Is it enough?
Egypt's $3 billion IMF loan will buy time for a government whose finances are wracked by investor fears and political upheaval. Tourism was down 46 percent in the first quarter of 2011.
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The 18 days of protests that ousted former Egyptian President Hosni Mubarak in mid-February and political unrest since has scared off tourists and investors. The rapid decline in tourism, a major source of revenue, and capital flight has depleted Egypt's foreign currency reserves.
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The so-called "stand-by arrangement" amounts to credit on easy terms that Egypt is expected to use to avoid payment shortfalls and shore up its currency, the Egyptian pound.
Under the deal signed between the IMF and Egyptian Finance Minister Samir Radwan, $3 billion will be disbursed to Egypt in installments over the course of the next year. After the last installment is paid, Egypt will have five years to repay the loan, and its annual interest rate will be 1.5 percent. The Egyptian government currently borrows money in pounds at 10 percent a year and its market cost for dollar borrowing is over 5 percent.
The arrangement with the IMF comes as part of the Egyptian government’s plan to receive loans and donations from the World Bank, Western nations, and Gulf states to reassure markets about the stability of the pound and Egypt's ability to pay its debts.
“We are getting a lot of support in terms of hugs and kisses, that I can assure you,” Minister Radwan said. “But I believe it only when it comes in the shape of a check.” Saudi Arabia, Qatar, and the European Union are talking about loans, and President Barack Obama promised between $2 and $3 billion in economic relief, he said. But the details of these programs remain unknown.
On a recent morning under the hot Cairo sun, one of the world’s most famous tourist sites was speckled with just several dozen visitors. The pyramids of Giza used to see tens of thousands of tourists a day; now they see mere hundreds.
“People are afraid of Cairo,” says Ali Abdel Atti, standing next to his trinket stand near the Sphinx. “Sometimes I come here with empty pockets, and I leave with empty pockets.”
Tourism dropped 46 percent in the year’s first quarter, according to the government statistics agency.