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Egypt needs to fix economy, strike IMF deal-Kerry

MYT 5:30:01 AM

CAIRO (Reuters) - Egypt's need to get the economy back on its feet is paramount and urgent, and the government should strike a loan deal with the IMF, U.S. Secretary of State John Kerry said on Saturday.

U.S. Secretary of State John Kerry (L) poses for a photograph with Arab League Secretary General Nabil El-Arabi after their meeting in Cairo March 2, 2013. U.S. Secretary of State John Kerry will stress the importance Egypt achieves political consensus for painful economic reforms needed to secure an IMF loan, a senior U.S. official said on Saturday. Kerry arrived in Egypt on his first visit to the Arab world since taking office for talks with the leaders of a country mired in political and economic crisis two years after the overthrow of autocrat Hosni Mubarak. REUTERS/Jacquelyn Martin/Pool
U.S. Secretary of State John Kerry (L) poses for a photograph with Arab League Secretary General Nabil El-Arabi after their meeting in Cairo March 2, 2013. U.S. Secretary of State John Kerry will stress the importance Egypt achieves political consensus for painful economic reforms needed to secure an IMF loan, a senior U.S. official said on Saturday. Kerry arrived in Egypt on his first visit to the Arab world since taking office for talks with the leaders of a country mired in political and economic crisis two years after the overthrow of autocrat Hosni Mubarak. REUTERS/Jacquelyn Martin/Pool

The country's foreign currency reserves have dived to little more than a third of levels before the 2011 revolution and the budget deficit is soaring as a sliding Egyptian pound pushes up the cost of state subsidies for imported fuel and food.

"It is paramount, essential, urgent that the Egyptian economy get stronger, that it gets back on its feet," Kerry told Egyptian and U.S. business executives in Cairo. "It's clear to us that the IMF arrangement needs to be reached, that we need to give the market that confidence."

The Islamist government of President Mohamed Mursi said on Thursday it would invite an IMF team to reopen talks on a $4.8 billion loan that was agreed last November but put on hold at Cairo's request during street violence the following month.

Two years after the overthrow of Hosni Mubarak, the most populous Arab nation is deeply divided with many opposition parties promising to boycott parliamentary elections due to be held in four stages between April and June.

With an IMF deal likely to involve painful measures, Kerry called for consensus on tackling the problems. "We do believe that in this moment of serious economic challenge, that it's important for the Egyptian people to ... gather round the economic choices and to find some common ground," he said after meeting Foreign Minister Mohamed Kamel Amr.

Amr made clear that Egypt, which has a peace treaty with Israel and close military relations with the United States, expected Washington's help in stabilising the economy.

"We expect from friends, particularly from the United States, as a strategic partner to Egypt, to stand (by) Egypt during this period in the economic arena," Amr said, standing alongside Kerry at the Foreign Ministry.

Washington wanted to support the democratic process, said Kerry. "We are not here to interfere, we are here to listen," he said. "We are not here to urge anybody to take one particular action or another, though we have a point of view and certainly I will express that. But what we support is democracy and the people and the nation of Egypt."

MAKING THE RIGHT DECISIONS

Kerry said he would talk to Mursi on Sunday about what the United States could offer Egypt, including economic assistance, support for private business and boosting Egypt's exports to the United States. But Washington needed to know "that Egypt is going to make the right fundamental economic decisions with respect to the IMF", he said.

Signs of economic stress abound. Imports of wheat, needed to feed a fast growing population of 84 million, are down sharply so far this year even though the government said food importers are getting priority allocation of dollars.

Earlier this month, the government also announced a 50 percent rise in the price of subsidised fuel oil for customers outside priority industries that include food and power production. The central bank has reduced the supply of dollars auctioned to commercial banks, forcing many businesses to turn to the black market for foreign exchange.

Earlier, a senior U.S. official said Washington believed Egypt needed to increase tax revenues and reduce energy subsidies - measures that are likely to be highly unpopular if Mursi's Muslim Brotherhood government forces them through.

Egypt's investment minister has expressed hope that a deal could be done with the IMF by the end of April.

The loan was delayed due to violence over a planned rise in taxes. While the tax rise was withdrawn, Mursi is likely to face more trouble as any cuts in subsidies demanded by the IMF will push up living costs in a country where poverty is rife.

Energy subsidies soak up about 20 percent of the government budget, bloating a deficit set to soar to 12.3 percent of annual economic output this financial year.

CLASHES IN EGYPTIAN CITIES

A group of anti-Mursi demonstrators set fire to pictures of Kerry outside the Foreign Ministry, the state MENA news agency reported, before Kerry arrived to meet Amr.

Earlier, the demonstrators had marched from Tahrir Square, the centre of the 2011 uprising. Some held up cartoons of Kerry, portraying him with an Islamic beard, saying "Kerry - member of the Brotherhood". Others banners said "Kerry, you are not welcome here" and showed the characteristic moustache and fringe of Adolf Hitler superimposed on pictures of Mursi.

The protest was peaceful. However, youths fought interior ministry police on Saturday in the Nile Delta city of Mansoura, where one protester was killed and dozens injured. In the Suez Canal city of Port Said, protesters torched a police station, security sources said.

While these protests were unrelated to Kerry's visit, they were examples of the frequent outbreaks of unrest. Clashes are commonplace, with protesters demanding that Mursi reform the interior ministry's police force. Police reform was a main demand of the uprising that toppled Mubarak.

SLIM HOPES

Hopes for consensus between the ruling Islamists and opposition parties seem slim due to the election boycotts announced by liberal and leftist opposition parties. There were called over a new constitution produced by an Islamist-dominated assembly and other grievances.

Kerry met opposition leaders on Saturday but many senior figures were missing from the round table talks, including Hamdeen Sabahy, who came a close third in presidential elections last year but had refused to attend the meeting.

However, Kerry met separately with Amr Moussa, a former Arab League Secretary-General and defeated presidential candidate, and spoke on the telephone with another party leader, former U.N. nuclear agency head Mohamed ElBaradei.

(Additional reporting by Marwa Awad; Editing by Stephen Powell)


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