Egypt's urgent crisis: foreign debt
HOSNI Mubarak's visit to Washington this week is his fifth in four years as Egypt's President. Predictably the press and administration have been focusing attention on the thorny political questions in the region, especially the stalemated Arab-Israel negotiations. But the truly urgent question is economic -- the weight of Egypt's foreign debt on the country's future. More than $31 billion in debt burdens Egypt's fragile economy. Egypt's four main sources of foreign exchange -- oil exports, worker remittances, tourism, and Suez Canal fees -- are either stagnant or in decline. This year, the International Monetary Fund says, the country faces a $1.3 billion payments deficit, and in the years ahead ``financing gaps are likely to remain very substantial.'' The biggest -- and politically the most difficult to explain to the Egyptian public -- is the US foreign military s ales debt for purchases to replace Soviet equipment. Now approaching $500 million a year, it will rise almost to equal our economic aid to Egypt, about $800 million.
US officials see this debt in the global context of a world of friendly and hard-pressed official debtors, and in the local context of terrible US balance-of-payments and budget deficits. To do a special favor for Egypt in deferring military debt would open the door for Turkey, Morocco, and others and deprive us of anticipated foreign exchange. Rather than open that door, the administration has provided Egypt a ``one time'' supplemental appropriation of $500 million. The money will help, but the proble m is not a ``one time'' affair.
The Egyptian perspective is rooted in the past. Just over a century ago, the Khedive Ismail faced a crisis with his European creditors. Their solution was to impose economic controls -- through European ministers in the Egyptian Cabinet -- and to extract the money owed them. This pressure produced the first reaction of an incipient Eygptian nationalism under Colonel Orabi. His rebellion was suppressed by the British, who occupied Egypt for decades. Thus, for the Egyptian the historical parallel is very real, and for leaders the threat of a debt crisis and foreign dictation (whether British, US, or IMF) is intolerable.
Moreover, for every Egyptian the abrupt austerity demanded by the IMF will drive up prices, destroy jobs, and effectively junk the social and political benefits of the Nasser revolution. No Egyptian leader will risk the ``IMF'' riots of Tunisia, Morocco, and the Sudan or a repetition of Egypt's 1977 bread riots. Given the stark choices of bearing down hard on a population that is already agitated by economic distress and the Islamic revival, or of refusing to pay creditors, the Egyptians will certainly take the latter choice -- hoping still for the sympathy of its Camp David partner and a shift to great parity with Israel in economic aid.
Short of a debt collision with us, the Egyptians have few choices. For the near term, Egypt must continue its gradual, ``invisible'' ways of reducing consumption and government costs, raising prices and cutting military and development expenditures and doling out minimum money to creditors.
There are two problems with this ad hoc policy. First, there is no slack. A sudden drop in oil prices or another sharp external blow could put Egypt in a real crisis with no choice but to end debt payments. Second, it builds greater problems for the future. Gradually but surely, public (and military) unhappiness will grow and support for US-backed policies in the region will decline. Finally, deferring development in industry, agriculture, power, and infrastructure will leave Egypt badly prepared for th e requirements of a population that will reach 60 million to 70 million by the end of this century. It is time now to think about the kind of country they will live in and its role in regional stability.
The Egyptian government has been moving cautiously but steadily to put its economy in better shape. The United States has helped, but not wisely enough. Together we need to plan for the long term. A first step must be a more realistic schedule of debt repayments at today's interest rates. If we do not bite this bullet, we will face even greater adjustments and higher costs in the future.
Allen Fielding is a specialist in Egyptian affairs.