While Egyptian newspapers did not mention any agenda Egypt should follow in order to cash the $12 Billion 3 years loan, yet, a prescription of 10 economic policy changes are customary to constitute the developing countries reform packages.
This prescription is developed by Washington based financial institutions as the World Bank, International Monetary Fund and the US. Treasury Department; hence its name: The Washington Consensus. These 10 economic recommendations are:
1. Fiscal policy discipline, with avoidance of large fiscal deficits relative to GDP;
2. Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
3. Tax reform, broadening the tax base and adopting moderate marginal tax rates;
4. Interest rates that are market determined and positive (but moderate) in real terms;
5. Competitive exchange rates;
6. Trade liberalization: liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs;
7. Liberalization of inward foreign direct investment;
8. Privatization of state enterprises;
9. Deregulation: abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions;
10. Legal security for property rights.
Is the IMF loan good for Egypt? well, there is no definite answer. It is YES and NO. The yes, because -if used correctly-the loan can alleviate some of the hard currency problems, it may generally may enhance the Egyptian economic image leading to a boost in Foreign Direct Investment. On the other hand, these prescription have a history of criticism; the wealthy elite expand their wealth while the majority of the people suffers.
The IMF's advice is not always right. And if it is right then it is not a Win-Win situation. The Argentinian crises in the last decade is evident. The Egyptian situation currently is not as sever as the Argentinian, although similarities are noticeable: IMF loan, , limits on hard currencies and on use of credit and debit cards abroad, and especially preserving a currency peg. The IMF is not totally responsible, yet their advice of backing these actions was not in in the interest of the Argentinean economy.
After the Argentinean default, the devalued currency enhanced the price competitiveness of the Argentinean exports (especially the increase in the international prices of Soy), the government encouraged import substitution through production of domestic products, accessibility of credit to business, improvement of tax collection and controlled expenditure. Currently the living standards have improved significantly, yet, an fair distribution of income has not achieved.
The Washington Consensus is not a global rule. Tailored advises and reforms should be taken in consideration. The Egyptian Economy is suffering, and not only the IMF loan will help it recover. Efficient and Sustainable Resource Management, floating the Egyptian Pound, better tax collection, better management of subsides, encouraging investments, and the ease of doing business as well as encouraging domestic production and import substitution is Egypt's best option.
This prescription is developed by Washington based financial institutions as the World Bank, International Monetary Fund and the US. Treasury Department; hence its name: The Washington Consensus. These 10 economic recommendations are:
1. Fiscal policy discipline, with avoidance of large fiscal deficits relative to GDP;
2. Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
3. Tax reform, broadening the tax base and adopting moderate marginal tax rates;
4. Interest rates that are market determined and positive (but moderate) in real terms;
5. Competitive exchange rates;
6. Trade liberalization: liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs;
7. Liberalization of inward foreign direct investment;
8. Privatization of state enterprises;
9. Deregulation: abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions;
10. Legal security for property rights.
Is the IMF loan good for Egypt? well, there is no definite answer. It is YES and NO. The yes, because -if used correctly-the loan can alleviate some of the hard currency problems, it may generally may enhance the Egyptian economic image leading to a boost in Foreign Direct Investment. On the other hand, these prescription have a history of criticism; the wealthy elite expand their wealth while the majority of the people suffers.
The IMF's advice is not always right. And if it is right then it is not a Win-Win situation. The Argentinian crises in the last decade is evident. The Egyptian situation currently is not as sever as the Argentinian, although similarities are noticeable: IMF loan, , limits on hard currencies and on use of credit and debit cards abroad, and especially preserving a currency peg. The IMF is not totally responsible, yet their advice of backing these actions was not in in the interest of the Argentinean economy.
After the Argentinean default, the devalued currency enhanced the price competitiveness of the Argentinean exports (especially the increase in the international prices of Soy), the government encouraged import substitution through production of domestic products, accessibility of credit to business, improvement of tax collection and controlled expenditure. Currently the living standards have improved significantly, yet, an fair distribution of income has not achieved.
The Washington Consensus is not a global rule. Tailored advises and reforms should be taken in consideration. The Egyptian Economy is suffering, and not only the IMF loan will help it recover. Efficient and Sustainable Resource Management, floating the Egyptian Pound, better tax collection, better management of subsides, encouraging investments, and the ease of doing business as well as encouraging domestic production and import substitution is Egypt's best option.
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