Egypt should not fall into IMF trap

Don’t do it, President Morsi! Don’t borrow $4.8 billion from the International Monetary Fund! It’s a trick, a trap, a con, a snare. You are being seduced by the Wicked Witch of the West, IMF Managing Director Christine Lagard! Reject her!

Lagard is the one murmuring honeyed words about wanting to help Egypt to improve stability, restore the confidence of investors, create jobs and ease the financial burden of very high financing terms.

O you Wicked Witch! The IMF is the arm of Western financial interests. If Egypt takes the money it will become your debt slave. It will enter bondage. Like the haris of Pakistan who, borrowing at outrageous interest rates for a wedding, a funeral, or the sickness of a child, find that they cannot repay, Egypt will be enslaved for ever.

(NB. The haris have ever-compounding debt which is passed from generation to generation so that each new generation, from the moment it is born, is faced with the impossible task of repayment. Whole families then have to work long hours for the rest of their lives getting, at best, a pitiful wage while their daughters are sold into prostitution.)

“Wait! I am being traduced!” cries the Witch. “Who said anything about Egypt borrowing at outrageous interest rates? Has not the IMF promised a very reasonable rate of only 1.1% over five years?”

Yes, and that’s exactly where lies the trick, the con, the trap and the snare, you wicked woman. At 1.1 % it seems like easy money and so a further offer will come. “Why not have another $5 billion?” And another…. and another….

The trick lies firstly in the very short repayment period. The loan cannot be repaid in that time so further loans will become necessary at much higher, ever-compounding, rates of interest.

Listen to President Obasanjo of Nigeria speaking in 2000. Referring to his country’s debt to international creditors, he said:

“All that we had borrowed up to 1985 or 1986 was around $5 billion and we have paid about $16 billion yet we are still being told that we owe about $28 billion. That $28 billion came about because of the injustice in the foreign creditors’ interest rates. If you ask me what is the worst thing in the world, I will say it is compound interest.”

Starting at $5 billion (the same as Egypt) the total a few years later was $44 billion.

And, secondly, note that the repayment is in dollars. The international bankers need only to engineer a run on the Egyptian currency (as they did to Malaysia in 1998) and the sums to be repaid shoot up as the currency falls.

But there’s a third, deeper, dirtier aspect to the trick. Right the way round the world, people and their governments are told that the only way to borrow money is to go to a bank, or the IMF, and get a loan at interest. Yet how many people let alone governments realise that the borrowed money is not gold or something having a physical reality but, rather, is merely an electronic image created by the pressing of computer buttons?

When that is realised, sensible people make the further realisation that there is no need to borrow from abroad or the commercial banks. Rather a country can, and should, borrow from its own national bank (which can just as easily press the computer buttons).

This has the huge advantage of no interest being involved and the further advantage of it being repayable only in the Egyptian currency. Sadly, this is a matter not understood by Prime Minister Kandil who says that, without the IMF loan at 1.1%, the government would have to borrow at high interest rates (around 15%) from the domestic banking system. No, it doesn’t. A country can borrow at 0% interest from its own national bank.

If at all possible, no country should ever, borrow from abroad particularly when repayment is to be made in a foreign currency. Moreover, if necessary, citing upheaval caused by revolution and the corruption of the Mubarak regime, Egypt should declare a moratorium on all repayments to foreign creditors. At the same time it should impose a period of capital controls.

But with the greatest respect to President Morsi personally, Egypt is showing no knowledge of the courage of Prime Minister Mahathir of Malaysia who in 1998 had the courage to stand up to the IMF (which, two years later, was forced to make a grovelling apology).

Consequently, Egypt is falling into the trap set by the Wicked Witch.

In Egypt, the Salafi Nour party is opposed to the IMF loan on the grounds that it is at interest and the Qu’ran forbids the taking or giving of riba (interest).

Furthermore, showing understanding of the need to reject foreign borrowing, Younis Makhyoun, a member of the party’s supreme committee, said, “Borrowing from abroad is usury. God will never bless an economy based on usury.” He went on to advocate finding other ways to raise funds instead of “allowing foreigners to interfere in our affairs.”

Yes, exactly.

Unfortunately, the World Bank, there are Witches everywhere, is also in the game of tricking Egypt into debt and in June a $200 million loan was signed.

Reject these Witches, President Morsi!