Enter transition, Exit conditions

Compare and contrast: IMF statement on Egypt —

“A number of fundamental structural reforms, including the transition to a VAT-like consumption tax and reform of the highly inequitable and costly system of subsidies, are needed to improve the efficiency of public spending and help reduce the fiscal deficit in the medium term. We share the government’s view that immediate implementation of such reforms is not feasible in the context of this arrangement as additional preparatory work is needed to ensure that an effective safety net is in place to protect the low income households. The government intends to prepare a road map to facilitate implementation of these reforms in the future.”

IMF statement on Belarus

“We have also initiated discussions on a possible IMF program. This has only been the beginning of our discussions and we still have a long way to go. We need to have further negotiations on macroeconomic policies. We will also need to agree on structural reforms to improve the efficiency of enterprises and the financial system so that in future growth will be strong and durable. Above all, the authorities have to be committed to macroeconomic stabilization and structural reforms. We will have to agree on strong stabilization and structural measures which would be implemented prior to the program and would demonstrate their commitment.”

To spell it out, Egypt and Belarus are both looking for around US$3 billion.  Egypt gets it with an explicit deferment of structural reforms as long as there is an “action plan.”  Belarus will have to do reforms before there’s a loan.  Does anyone else see a political version of moral hazard here?

7 thoughts on “Enter transition, Exit conditions

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  2. IMF reforms are difficult. They’re often either obnoxious to some particular interest group, broadly unpopular to the public at large, or both.

    Slapping IMF conditions on Egypt right now is probably a bad idea; it would require a fragile new government to take difficult and unpopular actions just when it’s trying to get its feet under it. The IMF and World Bank have done this before in other places — I had a ringside seat for it in Serbia a decade or so back — and it hasn’t always ended well.

    This is not to say that you’re wrong about moral hazard; you’re not. Just that the IMF might plausibly be choosing a less-bad option.

    Belarus, nobody cares if Lukashenka has to make some difficult calls. Belarus has no opposition worth mentioning; Batka can pretty much do as he pleases. So there’s no compelling reason for the IMF to play nice.

    Doug M.

  3. Belarus had a program last year and failed to execute. Is Egypt’s redoing one, too?

  4. I agree Doug.

    Egypt is not redoing a program, so maybe they get a pass the first time around. But the agenda is a lot of things that you’d have thought years of being hailed as “reformers” would have already accomplished.

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