Stabilization and Adjustment in Egypt

Stabilization and Adjustment in Egypt

Reform or De-Industrialization

Gouda Abdel-Khalek

This book studies the impact of Egypt’s Economic Reform and Structural Adjustment Programme (ERSAP), the effects of which have been of great interest to the international community. Organizations such as the World Bank and the IMF uphold the programme as a success story and example for other countries to follow. ERSAP also has its critics, however, who resent its tendency to downsize government and fear possible negative effects on growth and development. The author discusses these concerns along with those regarding the possible negative social effects of ERSAP.

Foreword

Ibrahim Shihata

Subjects: development studies, development economics, economics and finance, development economics

Extract

The author of this book is a well-known Egyptian economist who belongs to a highly respected opposition party with strong leftist leanings. His study does not however necessarily argue against Egypt’s last Reform and Structural Adjustment Programme (ERSAP) that was supported by the IMF and the World Bank. It only attempts to show that some of the adverse effects attributed to that programme could have been avoided or minimized. Trade liberalization, lowering credit limits as well as raising interest rates and adjusting energy prices could have been better sequenced, the exchange rate regime could have been reworked to avoid the effective appreciation of the dollar-pegged Egyptian pound, fiscal retrenchment could have been modestly relaxed and capital mobility should have remained subject to some controls. The author’s arguments are well presented, even though they run counter to a widely-held view that Egypt’s ERSAP greatly improved its macro-economic conditions and would have even fared better if its implementation had gone faster, especially when it came to privatization and wage and price rationalization. The author admits that the effect of ERSAP on the public sector-dominated Egyptian industry has been mixed. He argues, however, that deeper restructuring of major industries should have preceded or accompanied the introduction of reform measures. By way of example, he points to the iron and steel factory in Helwan (HADIDSOLB). It is doubtful however, that any restructuring could have saved that overstaffed enterprise and it continues to inflict huge losses on the economy. The author’s ideological orientation seems...