$3 billion loan with almost zero interest? No thanks, says Egypt.

Why? Well, it was coming from the IMF.

AP/Emilio Morenatti
Egypt says no thanks to the IMF. But until the tourists start coming back, it's going to need money from somewhere.

In the world of International Monetary Fund loans, the terms of a package Egypt agreed to earlier this month was a steal.

Egypt would be allowed to borrow $3 billion to help deal with the financial aftermath of February's revolution and would only have to pay 1.5 percent a year (at a time when it borrows internationally at 5 percent). Best of all, Egypt wouldn't have to take any of the politically and socially destabilizing steps (cutting food subsidies, for instance) the IMF usually demands in exchange for its help.

On its face, the deal was good for Egypt and just possibly evidence of an IMF moving away from its neoliberal cookie-cutter formula of "open markets and cut spending" in response to every financial crisis.

But then over the weekend, Egypt said "no thanks." It also stopped negotiating a loan deal with the World Bank. On Saturday Egyptian Finance Minister Samir Radwan said the change was because the interim government's spending plans had been cut. "So we do not need to go at this stage to the Bank and the Fund," he told reporters. (There's an interesting post on all this at the Arabist blog.)

But that official reason – that the projected budget deficit was recently revised down – should not be taken seriously. The country agreed to the terms of this controversial loan less than three weeks ago, with no change in Egypt's dire short-term economic prospects since. And the current projected deficit remains a whopping 134 billion pounds ($22 billion). That's down for an expected deficit of 170 billion pounds, but still has to be financed from somewhere.

Mr. Radwan said Satuday that both Saudi Arabia and Qatar have promised Egypt $500 million in no-strings attached "gifts." But whether this money will in fact materialize, and whether the two countries will use these opaque financing means as leverage over Egypt diplomatically are open questions. Plus, that's still less than 5 percent of their predicted deficit.

Among the leftist activists who helped organize and drive the Egyptian revolution, there were howls of fury over the IMF loan when it was first agreed (and over ongoing contacts between Egypt and the World Bank). These folks view both organizations as tools of economic imperialism, and any ties with the institutions as threats to Egyptian sovereignty.

It's unclear how popular the left will be at the ballot box. But the growing importance of labor unions in Egypt in recent years, the fact that some of the most effective protest organizers around Tahrir Square during the revolution were from the left, and the general drift of Egyptian society indicates they'll have a much bigger voice then they've had in decades.

If I had to guess, I would say Egypt's ruling military junta decided it wasn't worth it to have a confrontation over the IMF loan. Any damage done to the nation's finances will have to be dealt with by some future civilian leader, presuming elections are held on schedule this fall. Maybe they even think they can trust the Saudis.

Follow Dan Murphy on Twitter.

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