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finance minister touts reform measures
by alex hess
it was as if someone didn’t want him to give
the good news. every time finance minister youssef boutros-ghali
began to enumerate improvements to the budget or wax poetically
about the state of the economy, his microphone cut out or a journalist
fiddling with his recorder interrupted him. but boutros-ghali was
not deterred. instead, egypt’s uber-economist enamored the
crowd at last month’s euromoney conference with his poise
and trademark wit.
in his keynote speech, boutros-ghali highlighted the ways in which
economic liberalization in egypt can improve society as a whole.
his apparent intention was to remind the audience, which included
the nation’s most powerful businessmen and financiers, that
the goal of reform is to serve the public. the finance minister
outlined the major initiatives of his ministry, which include adjusting
domestic prices, increasing budgetary transparency and investing
in social programs; all of which, he argued, are interconnected.
the minister was keen to assuage concerns over domestic inflation,
which he puts at 8.5 percent. boutros-ghali claimed the looming
figure was really just a sheep in wolf’s clothing. “the
inflation that would worry me is [the type] that comes from the
excess of demand over supply, which means that we have to slow down,”
he said. “the inflation that does not worry me – and
the one that we have – is the inflation that comes from supply
shocks, exogenous factors and factors from outside the economy that
hit the economy.” he identified avian flu and high energy
prices as the main culprits responsible for egypt’s high inflation
rate.
certainly, the government’s reduction of energy subsidies
last july has created inflationary pressure. “it is an inflation
that is different from the nature of all others; it is an inflation
that raises prices once. when we move from le 1 per liter to le
1.30, that’s it. it is not an inflation that pushes le 1.30
to le 1.40 to le 1.50 to le 1.60. this is a more pernicious inflation,
a more dangerous inflation, and one that would require that we slow
down. this is not the kind of inflation that we have,” he
said.
boutros-ghali intimated that other subsidies would be reexamined.
“over the past 30 to 40 years, relative prices were distorted,”
he said. “relative prices need to be adjusted... and that
is the transitional cost of moving to an economy that is truly healthy.”
he admitted, however, that tampering with subsidies could be devastating
for the poor. thus improving social programs for lower income groups
is a distinct priority for future development. boutros-ghali proposed
that the privatization program – the very mechanism that opponents
accuse of destroying the social fabic – could be used to improve
the social safety net. “privatization has many benefits, increasing
the productivity of our economic assets, increasing employment,
[expanding] the private sector; but it has one additional feature
that is crucial, in that it allows us to turn over the assets of
this economy. i will take money out of a textile plant that i sell,
and put it into a hospital. i will take money out of a petrochemical
plant if i sell [it], and put it into a training center, a school
or a university. [we will] improve the social structure. we have
the assets, we need to redistribute them.”
privatization aside, rationalizating the budget could help spur
growth and channel funds to social programs, boutros-ghali said.
“we need to establish rationale in public revenue. and this
is, paradoxically, what is going to increase public revenue.”
he used tax reform as an example, noting that after last year’s
revision of the tax code, which slashed corporate and personal taxes,
national revenues rose 17 percent despite predictions of a 12-percent
drop. he also touted the new budget document, which conforms to
international standards and is now comprehensible to a broader audience.
the minister explained his intention to bring subsidies into the
national budget to encourage open debate on their size and target.
for example, the ministry recently included petroleum subsidies
in the budget, which allows discussion on “whether or not
spending le 40 billion on energy subsidies is appropriate when only
le 30 billion is spent on education and health care combined.”
investment in education, boutros-ghali argued, is critical to maintain
egypt’s competitiveness in world markets. “we have a
pool of not only unemployed, but unemployable. and we need to retrain
them,” he said. “we have the jobs and paradoxically,
despite 10 percent unemployment, we don’t have the workers.”
while the finance minister’s speech covered a broad range
of reform initiatives, past successes and remaining problems, he
summed up his outlook on the future of the economy in two sentences.
“what drives this reform, what drives these measures, are
ultimately egyptians, not gulf money or oil money. your brothers
and sisters, your sons and daughters are the ones driving this reform,
and as long as they are here in this economy we have a very bright
future ahead of us.”
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