Mubarak's choice of premier suggests Egypt's readying for reforms

Egyptian President Hosni Mubarak's appointment of a new prime minister marks yet another effort to address his country's multiplying economic problems. After swearing in Prime Minister Atef Sedki Wednesday, Mr. Mubarak called for economic solutions. Without these, Mubarak said in a speech broadcast throughout this country of 50 million people, ``the results could be deplorable and the outcome horrifying. I tell you this not as a threat, but as a warning.''

Dr. Sedki was named Sunday, when Mubarak suddenly announced the dismissal of Prime Minister Ali Lutfi, a leading economist who had been given the post in September 1985 with a mandate to pull Egyot out of an economic recession which has only grown worse.

Sedki's appointment is cautiously hailed by Western diplomats as a sign that Mubarak has finally accepted the need for significant economic reforms demanded by the World Bank and the International Monetary Fund (IMF). In exchange for aid totaling $1.35 billion, both institutions have asked Egypt to adopt several sweeping reforms, including abolishing massive subsidies. The package could be worth as much as $4 billion considering the likelihood that the deal would also lead to a rescheduling of Egypt's $38.5 billion foreign debt.

In mid-1985, Mubarak began lobbying for the aid without carrying out tough economic reforms. He asked the United States and West European friends to pressure the World Bank and IMF to ease their demands.

But after a meeting between IMF and Egyptian officials in Washington last month, Mubarak evidently got the message that the World Bank and IMF would not back down. According to Western diplomats, Sedki was appointed with a mandate to make reforms so as to reach an agreement with the World Bank and IMF.

According to Western diplomats here, Dr. Lutfi - though himself a reformist - was dismissed for his failure to lead his fellow ministers, many of whom were politically powerful and opposed reforms, into a consensus. Sedki, a professional economist like his predecessor, is expected to have more success, partly because he has brought along his own team of ministers.

Sedki has ``the ear of the President,'' having served as adviser to then-vice-president Mubarak before 1981, and has ``excellent and powerful connections in Egyptian political, econmic, and financial circles,'' says a diplomat who has met him. Since 1981, Sedki has held the powerful but unglamorous post of chief of the state auditing bureau. ``His ideas are basically free-market ones,'' says the diplomat.

Following his appointment, Sedki said he could not accept some of the conditions set down by the World Bank and IMF. Observers felt, however, that this was merely a warning that Sedki would be no pushover in his negotiations with the internationl bodies despite his political inexperience.

According to informed sources in Cairo, the World Bank is demanding three things: sharp increases in energy prices for Egyptian consumers and a plan to abolish all energy subsidies over time; abolition of price and crop controls on farmers; and a plan to phase out unproductive subsidized industries.

The IMF, in addition, demands a plan to raise revenue and reduce expenditures; the abolition of the state-controlled monetary exchange rate; and the abolition of interest-rate controls.

Mubarak has been reluctant to cut the $7 billion annual state subsidies - one-third of Egypt's budget - because widespread rioting erupted in 1977 when former President Anwer Sadat cut some food subsidies. Egyptian officials also fear that other demands, such as the elimination of controlled exchange rates, could be dangerously inflationary.

The regime feels that a rising tide of Islamic fundamentalism in Egypt could feed off of political unrest. In February, Mubarak had to order the Army to maintain order for two weeks after police conscripts rioted in several cities over poor wages and living conditions.

Nevertheless, the country's economy, already in shambles because of the inefficient state industries and bloated bureaucracy, sharply deteriorated in 1985 and 1986. Revenues from Egypt's Red Sea oil wells declined by more than $1 billion annually due to the unexpected drop in world oil prices. Terrorism also scared away visitors, cutting vital tourism receipts.

The Reagan administration has been encouraging Mubarak's regime to address Egypt's basic economic problems, as reflected in the reform demands of the World Bank and IMF, as a means of safeguarding its long-term economic and political stability. Egypt is the most important US ally in the Arab world today.

But Egypt feels that, in one way, the Reagan administration - by failing to restructure repayments on Egypt's $4.5 billion military debt to the US - is adding to Egypt's financial burden. And this perception could increase tension between Washington and Cairo, observers say.