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Friday, May 27, 2011

G8 support for Arab change strains Western purses


French President Nicolas Sarkozy welcomes Egyptian Prime Minister, Essam Sharaf (left) to day two of the G8 Summit. (File Photo)

French President Nicolas Sarkozy welcomes Egyptian Prime Minister, Essam Sharaf (left) to day two of the G8 Summit. (File Photo)
The windswept French coastal resort of Deauville where leaders of the G-8 countries are gathered to discuss funding political and economic reform in the Middle East and North Africa thrives on casinos, luxury hotels and designer shops.

But even the wealthy and famous who dole out in Deauville for their pleasure daily amounts that are a multitude of annual incomes in many parts of the Middle East and North Africa would recoil from the kind of money the leaders of France, Germany, Italy, Japan, the United Kingdom, the United States, Canada, Russia and the European Union are bandying about to support change in the region.

The International Monetary Fund (IMF) warned the G8 leaders that the Middle East and North Africa would need $160 billion over the next three years. The leaders, many of whom are struggling to drag their countries out of a financial crisis, said they would support the move for change in the region with $20 billion of funding through multi-lateral banks, including $12 billion from the European Investment Bank (EIB).
Egypt and Tunisia, the two Arab nations where protesters earlier this year toppled their autocratic leaders, will be the most immediate beneficiaries of the aid. French President Nicholas Sarkozy offered Egypt up to $250m a year in development aid on Thursday, British Prime Minister pledged $175 over four years for political and economic development, US President Barack Obama said last week that he will forgive $1 billion in Egyptian debt and provide it with another $1 billion in loan guarantees while German Chancellor Angela Merkel promised $40 million up front and another $130 million in the coming years.

By contrast, Canadian Prime Minister Stephen Harper arrived empty-handed in Deauville, insisting that Canada’s backing would come through its existing support of multilateral financial institutions, not a new aid package.

Mr. Harper’s approach is likely to one other trouble G8 economies will want to look at because it does not cost Canada anything unless there is a sizable loan default.
Casting a further shadow over the G8 urge to support reform is the struggle in post-revolution Egypt and Tunisia over how quick change should be pushed forward.

The Tunisian electoral commission wants to delay until October elections scheduled for July to allow more time to prepare a workable electoral roll. Tunisia’s interim government opposes any delay.

Egyptians demonstrated on Friday in Cairo’s Tahrir Square to protest the military’s domination of the transition process. Many want a new constitution to be drafted and adopted prior to elections, which would mean delaying parliamentary polls scheduled for August and presidential elections in September.

The G-8 leaders said the multilateral aid would be in addition to the bilateral aid they were making available to reform-minded Arab nations.

Canada says it has spent $4.6 billion over and above its regular payments to multilateral institutions since the Pittsburgh G-20 summit in 2009 called on the developed world to replenish regional banks in response to the global economic recession. Of that, according to Mr. Harper, $295 million is direct funding.

Mr. Harper may have been the most honest in his statements by suggesting that at least some of the money being pledged may already have been pledged before the mass anti-government protests in the Middle East and North Africa.

To be sure, much of the G8 countries’ development aid budgets will now be directed to furthering political and economic reform in the Middle East and North Africa. The question is however how much new money will be included in the pledges G8 leaders are making in Deauville.

Like Mr. Harper, Mr. Cameron too comes out of the G8 exercise relatively clean. The G8’s Accountability Report shows that Britain has given the most in terms of national wealth of all the major economies to developing countries. The leaders promised in 2009 to commit 0.7 percent of GDP to development aid.

Mr. Cameroon is walking a tightrope with his commitment to hold G8 leaders to their promises. By doing so, he is opening himself up to further domestic criticism that Britain is giving too much at a time of domestic financial austerity, certainly when compared to the overall G8 average. British Defence Minister Liam Fox in a letter leaked last week criticized Mr. Cameroon’s intention to enshrine in law Britain’s level of development aid.

Britain contributed $12.75 billion in development air last year or 0.56 percent of gross domestic product compared to Germany’s $11.7 billion or 0.38 percent, the US’s $27.75 which is 0.21 percent and France’s $12.2 billion or 0.5 percent of GDP. Overall, as an average the G8 spent last year 0.28 percent of GDP on aid.

Mr. Cameroon argued strenuously in Deauville that Western economic recovery and Europe’s efforts to balance its budgets should not be at the expense of the world’s poorest or those in the Middle East and North Africa who deserve support. That is a noble position.

But a British official conceded privately that Britain and others have quietly “moved away from the aid agenda because countries are not in a position to make new commitments and when you look at the pressure they are under because of the fiscal position you can see why.”

Beyond the issues of how much new aid is included in the G8 pledge to support reform in the Middle East and North Africa is the question of how much will be in the form of grants and how much will be loans and on what terms.

There is little doubt about the sincerity of G8 nations’ desire to support reform in the Arab world. If Western G8 countries do not financially underwrite change, no one will. Conservative Arab Gulf states are seeking to preserve the status quo in the Middle East and North Africa while both Russia and China are monitoring the protests out of concern that their peoples could be inspired to adopt the same tactic. Neither is likely to want to fund moves towards reform.

For the western G8 countries however, the Arab revolt could not have come in financial terms at a worse moment. They have no choice to open their purses at a time that they should be keeping them closed.

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