Egypt loan negotiations end without deal

After 2 weeks of talks, no agreement on terms for $4.8 b. loan to stabilize economy; IMF sees progress by Egyptian gov't.

International Monetary Fund logo 370 (photo credit: REUTERS/Bogdan Cristel)
International Monetary Fund logo 370
(photo credit: REUTERS/Bogdan Cristel)
CAIRO - Egypt and the International Monetary Fund failed to agree on terms for a $4.8 billion loan that could ease a worsening economic crisis in the Arab world's most populous nation.
After nearly two weeks of negotiations in Cairo, IMF mission chief Andreas Bauer, in a statement issued early on Tuesday, cited progress, notably in Egypt's efforts to better target fuel subsidies and broaden its revenue base.
"The mission made progress in the discussions with the Egyptian authorities on their economic program and possible financial support from the IMF," Bauer said.
"Discussions with the authorities will continue with the objective of reaching agreement on a possible standby arrangement in support of Egypt."
Egyptian officials played down the setback, saying talks would continue this week in Washington, and in Cairo after that, and the two sides were closing in on a deal.
"We are traveling to the spring meetings in the next two days and are going to be there in the coming week and will complete the negotiations there, and after we return, the mission will come again for us to complete some of the negotiations," Planning Minister Ashraf al-Arabi, one of the Egyptian negotiators, said in a television interview.
"But the talks are difficult," he told the privately owned CBC channel.
Neither side said why agreement had eluded them but analysts said the ruling Muslim Brotherhood did not want to risk unpopular measures that could hit poor and middle-income Egyptians before parliamentary elections expected from October.
"I don't think they will do any meaningful reform before the elections. That's the bottom line," said Samir Radwan, who was the first finance minister after the overthrow of former President Hosni Mubarak in 2011.
Radwan negotiated a $3.2 billion IMF loan with fewer conditions at the time but the military council that ruled Egypt then vetoed it.
Since then, foreign reserves have more than halved to the critically low level of $13.4 billion, the Egyptian pound has lost about 10 percent against the dollar, tourism and investment have withered and the country faces fuel shortages and power cuts.
An IMF program could help stabilize the economy in the rocky transition to democracy, unlocking up to $15 billion in aid and investment to improve a dismal business climate.
Western diplomats said the main sticking points were the government's unwillingness to commit to implementing cuts in fuel subsidies and sales tax increases which were the main conditions for IMF assistance.
"The IMF were extremely worried about deterioration of the economy and about lack of seriousness in dealing with the subsidies problem. I don't think they see any sign of change," Radwan told Reuters in a telephone interview.
The brief IMF statement did not mention those concerns. It praised some Egyptian government moves to bring down swelling budget and balance of payments deficits and said the IMF team was encouraged by support for socially balanced economic reform among the government and opposition political parties it met.
Egypt secured $5 billion in stopgap financial support from Arab allies Qatar and Libya last week, removing some of the sense of urgency about obtaining the IMF loan.
Economists said the government could muddle through for several months with funding from Arab sources, but only an IMF agreement would restore business confidence and investment.
"It comes down to the fundamental question of whether Egypt can reform and achieve an economic recovery over the medium-term and that comes down to an IMF-backed program, which is the key to restoring the confidence of investors, who will not come back without an IMF deal," said Brahim Razgallah at JP Morgan.
The IMF's conditions for lending were milder than past terms for Latin American and Asian countries, not least because the fund's main shareholders, the United States and European nations, see the strategic importance of stabilizing Egypt.
By contrast Tunisia, where the ousting of dictator Zine al-Abidine Ben Ali in January 2011 helped inspire the Egyptian uprising in what became known as the Arab Spring, is set to sign a $1.78 billion loan deal with the IMF on Tuesday, a government source in Tunis told Reuters.
"The IMF and the international community want to help but are really frustrated that Egypt isn't doing as much as it should to help itself," said Angus Blair, chairman of the Signet Institute, an economic think-tank for the Middle East and North Africa region. "I expect there is significant frustration."