Aug 23 2012
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WSJ(8/23) Egypt Hopes For Loan As IMF Revives Talks
Thursday, Aug 23, 2012
(From THE WALL STREET JOURNAL)
By Matt Bradley
CAIRO -- Egypt's new government hopes to secure a $4.8 billion loan from the International Monetary Fund before the end of the year, government officials said, in a fresh effort to heal the country's ailing economy.
At a news conference on Wednesday following meetings with President Mohammed Morsi and his senior economic team, Christine Lagarde, the IMF's managing director, said the global lender would return to stalled negotiations.
She declined to elaborate on the loan's projected size, its conditions for fiscal reform or details of the negotiations she said would begin in earnest after an IMF technical team arrives in Egypt in early September.
The planned resumption of talks offers a crucial lifeline 18 months after Egypt's revolution scared off foreign investors and tourists and set the country's economy in a state of free fall.
Analysts and government officials said a looming currency crisis, high domestic borrowing rates and the stability offered by the Muslim Brotherhood's dominance over Egypt's political scene would likely ease deliberations over loan terms.
A power struggle between Egypt's military leadership and its Islamist-dominated Parliament stalled the most recent round of talks for a $3.2 billion loan during the spring.
But Mr. Morsi's Brotherhood-backed presidency seized executive and legislative power from a council of leading generals earlier this month, leaving the Brotherhood as the only substantial negotiating force in Egypt.
"Now we have one power, which is an elected civilian president," said Abdallah Shehata, Mr. Morsi's economic adviser. "This has decreased the uncertainty about the future."
Mr. Shehata said the Brotherhood's Freedom and Justice Party is working with finance-ministry officials to create an economic plan to rationalize the wasteful food- and energy-subsidy regime that occupies nearly a third of Egypt's budget outlay of $79 billion.
Despite the IMF's earlier insistence that a broad coalition of political forces accept the loan's terms, Ms. Lagarde indicated that the fund was prepared to negotiate with a government dominated by one political party.
"We have perfectly competent authorities to negotiate with and we don't see any obstacle to the negotiations that will begin very shortly," she told reporters.
Egypt's economic circumstances have deteriorated substantially since the loan-negotiation impasse this spring.
The Central Bank of Egypt typically pays as much as 16% interest on loans from domestic banks to plug a budget deficit that may now exceed $20 billion, or nearly 8% of gross domestic product, said Mohsin Khan, a senior fellow at the Washington-based Rafik Hariri Center for the Middle East.
Egypt's diminishing foreign-currency reserves pose the most immediate economic threat to the country, many economists say. Egypt's central bank bled through nearly two-thirds of its foreign cash to prop up the Egyptian pound, which has depreciated by 3.5% since January 2011 and now hovers at slightly more than six to the dollar.
Finance Minister Mumtaz Al Said told Egypt's state-run Al Ahram newspaper on Tuesday that the government has no intention of devaluing the pound.
Despite the threat of political instability from rising inflation, many economists believe that a devaluation is inevitable, regardless of the loan's conditions or its size.
(END) Dow Jones Newswires
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