Google executive and Egyptian revolutionary superstar Wael Ghonim spent the other day in Washington, DC, on a panel at the IMF meetings with the likes of IMF director Dominique Strauss-Kahn and Professor Rashid Khalidi. What ensued was a very interesting discussion on the role of the IMF in propping up the Arab world’s dictators. The days before the revolution, Ghonim pointed out, saw an economic order in Egypt in which Mubarak and his family stole enormous amounts of money (probably billions, though not the $700 billion that one Egyptian source ludicrously proposed) while others made their living by picking through the trash. Shouldn’t the IMF and other international lenders have attempted to compensate for the deep corruption of the region’s regimes, and their striking inequalities, when designing their financial interventions?
International lenders are indeed between a rock and a hard place when dealing with states like Egypt or Algeria. Even after the liberalizations of the 1990s, their economies still revolve around the state, especially for the subsidy-dependent lower classes. Entangled in this state-centrism is immense corruption in the form of top-down patronage and bottom-up expropriation. The economies of many Middle Eastern states without oil are thus in unsustainable paradigms–money is leaving the state’s coffers as subsidies, salaries, and graft at a rate above the state’s capacity to extract wealth from society. They thus require international credit to avoid economic collapse, but creditors don’t want to give money to a state that will default or require substantial loan forgiveness–they don’t want to merely underwrite the state’s profligacy. Thus, they demand changes in the state’s economy that will make it more financially stable. This typically means a reduction in corruption and in state economic interventions. However, corruption is deeply entrenched in many of these states–indeed, it may even be necessary for the survival of their regimes. Removing or reducing the support structures for the poor, and cutting back on the unemployment-masking government bureaucracy, thus becomes a low-hanging fruit for regimes striving to impress creditors.
These creditors, meanwhile, have likely already loaned some money to these states, and they’d like to get it back, so they can’t merely withhold further loans when liberalization is left incomplete–allowing an economic collapse would all but guarantee they’d never see their money again, and it could destabilize global security and the global economy. Thus, Mubarak’s Egypt saw the poor contending with rising prices and rising unemployment while the government continued its thievery, with international creditors seemingly giving their approval.
Strauss-Kahn knew all of this, and knew the rest of the panel did too–he was thus left playing defense all day, but even with this in mind his deference to Ghonim was unusual. Ghonim represented himself as a naive folk hero, even comparing himself to America’s Joe the Plumber (an interesting moment in its own right) as he argued that the macroeconomic indicators used by international creditors were failing to capture the struggles of the man on the street–hardly a professional assessment, yet Strauss-Kahn agreed, saying that “there’s no way we [the IMF] can go on if on one side we have experts talking about economics and taking no account at all of what happens in real life.” This may have been merely a rhetorical maneuver, but the IMF and others are surely realizing that the new political openness in places like Egypt will also create more demand for accountability.
It is difficult to say whether the IMF will be happy with the new Egypt. On the one hand, the demands for accountability may see reduced corruption–something all parties will appreciate. However, what appears more likely is that whatever government emerges from the revolution will find that corruption still ineradicable, and will take the easier step of increasing subsidies. As Ghonim hinted, the role of rising prices in the unrest cannot be overstated; the new regime will have to consolidate its power and will find increasing subsidies to be an easy way of doing just that. This risks restoring an element of unsustainability that will surely make international lenders unhappy.
Upshot: Ghonim’s invitation to the panel is a sign that the IMF is cautiously optimistic about the new Egypt’s economy; his statements might serve as a reminder that it will still face serious challenges.