Robbing Peter to Pay Paul in Egypt

Posted on June 28, 2011

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There was abundant clamor last week when the Egyptian Finance Ministry made the announcement that it would be suspending negotiations over a proposed loan of 3 billion dollars from the IMF. While I think it’s still early to tell whether or not the Egyptian government is serious about this new non-Bretton Woods tack, one thing hasn’t changed. Egypt will still be negotiating a debt service swap with the United States for one billion dollars, as Masry Al Youm reports today [with an apparent translation error, which states the figure of 1 million rather than a billion]. While the idea of a debt service swap–where the US agrees to pay 1 billion dollars of Egypt’s debt obligations may seem innocuous and even helpful, there’s more to the story as Adam Hanieh recently observed:

Contrary to what has been widely reported in the media, this was not a forgiveness of Egypt’s debt. It is actually a debt-swap – a promise to reduce Egypt’s debt service by $1 billion, provided that money is used in a manner in which the US government approves. This debt-swap confirms the relationship of power that is inherent to modern finance. The US is able to use Egypt’s indebtedness as a means to compel the country to adopt the types of economic policies described above. Obama was very explicit about what this meant – stating that “the goal must be a model in which protectionism gives way to openness, the reigns of commerce pass from the few to the many, and the economy generates jobs for the young. America’s support for democracy will therefore be based on ensuring financial stability, promoting reform, and integrating competitive markets with each other and the global economy.”

Obama’s move proves that there’s more than one way to trap a country in never-ending service as neo-liberal investment opportunity and privatization gold-mine. That is, if Egypt has indeed shaken off the Bretton Woods monkey. That’s by no means yet official, as negotiations continue with the organizations.

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