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Wednesday, June 8, 2011

Western donor aid threatens to undermine Egyptian and Tunisian revolutions


The US and Europe hope to send several messages by providing promising substantial aid to Egypt and Tunisia. (File photo)

The US and Europe hope to send several messages by providing promising substantial aid to Egypt and Tunisia. (File photo)
A US and European pledge to pour money into Egypt and Tunisia as models for Arab states still in revolt or where popular efforts to achieve change have been at least temporarily suppressed could backfire.

The US and Europe hope to send several messages by providing promising substantial aid to Egypt and Tunisia, the two Arab nations where mass anti-government protests successfully toppled authoritarian leaders.

In a public display of embrace of the Egyptian and Tunisian revolutions, the Group of Eight last month pledged $18 billion both countries as well as other nations embarking on a transition away from authoritarian rule in aid, loans and debt relief.
By doing so the group sought to stress that developed nations together with multilateral financial institutions will support transitions to greater political freedom and free market economies void of overbearing state intervention, corruption and nepotism.

They also want to signal Egyptians and Tunisians that they are about to be rewarded for embarking on a difficult and risky road. Finally, aid to Egypt and Tunisia serves as an example and incentive for other still struggling to rid themselves of the yoke of authoritarian rule.

Few question the fact that economic aid is crucial to ensuring that the Egyptian and Tunisian revolutions succeed. The economies of both nations have suffered significant losses as a result of reduced tourism revenues, declining productivity and lack of domestic and foreign investment as a result of the turmoil and uncertainty over where both countries are heading.

But much like the domestic debate in both countries over the pace of political reform with some forces arguing that early elections would benefit entrenched powers and interests because newly emerging parties lack the time to build organizations that can fight electoral battles, political economists and activists question whether funds should be poured into Egypt and Tunisia before the two countries have had a chance to freely elect their own governments.

“The wisdom of heaping cash upon these countries has been taken for granted. In fact, it may do more harm than good,” says Saifedean Ammous, a visiting scholar at Columbia University’s Center for Capitalism and Society, and lecturer in economics at the Lebanese American University, in a commentary in The Financial Times.

Mr. Ammous argues that immediate aid to transition governments like the military in Egypt that has with a business empire valued at some $400 billion vested interests of its own will only serve to strengthen their grip on power, encourage them to embark on projects that may not serve the country’s need to quickly create jobs and could strain budgets and saddle them with debt.

The proof is in the pudding. Tunisia last month lobbied the G-8 for funding for up to $30 billion for transport, infrastructure and industrial projects that would “open up and connect the regions of the country.” The project differs little from ones pushed in the past by the authoritarian regimes of ousted Presidents Hosni Mubarak and Zine Abedine Ben Ali that produced little upside for ordinary Egyptians and Tunisians.

If national and individual dignity is what protesters in Egypt and Tunisia sought to achieve, then that is what aid donors should take into account in deciding how and when to disperse financial support.

“We will not be governed by the Bank, we will not be governed by imperialism”, we chanted, “and here are the terms of the Bank: poverty, hunger and rising prices,” says Egyptian activist Wael Khalil, recalling a decade of anti-Mubarak demonstrations in The Guardian.

An International Republican Institute survey concluded recently that more than half of the protesters who succeeded to oust Mr. Mubarak participated in the demonstrations because they had seen their standard of living deteriorate over the past year despite assertions by the World Bank and the International Monetary Fund that Egypt’s economy was progressing.

By strengthening entrenched interests and saddling post-revolution economies with debt that forces governments to increase taxes and tariffs and risks a fiscal and currency crisis and loss of sovereignty under the pressure of a repayment schedule, donors may be engineering the opposite of what they say they want to achieve.

Aid enabled the kleptocratic regimes of Messrs. Mubarak and Ben Ali to patronage a close knit circle of beneficiaries through their donor-endorsed privatization and reform programs at the expense of their populations in a bid to strengthen their grip on power by bolstering their security services and buying off the opposition.

“Without aid, however, governments find it harder to build corrupt client networks, and must instead be responsive to the demands of their people,” Mr. Ammous says.

Mr. Ammous’s proposition of holding off with aid until after Egypt and Tunisia have freely elected their governments although logically coherent poses a serious challenge to donors.

While it accounts for long-term effects of donor policy, it begs the question of how donors can bolster the push for a more open society and economy with average Egyptians and Tunisians expecting to see immediate benefit from the toppling of their authoritarian leaders. Both countries are racked by labor conflicts in which workers are demanding immediate results. It also fails to service donors’ goals of creating incentives for others in the Middle East and North Africa to remain steadfast in their demand for change.

In his wide-ranging Middle East policy speech last month, US President Barack Obama positioned the United States in support of anti-autocratic protests and singled out Egypt and Tunisia as examples.

Mr. Obama laid out a set of broad principles and announced financial initiatives to support the two nations in transition. The Group of Eight followed suit. The US president together with donor nations and multilateral financial institutions now needs to figure out how to ensure that their support doesn’t boomerang and instead serves their lofty goals.

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