G8 ‘Marshall Plan’ for Arab Spring Nations Falls Short

The 8 wealthiest industrial countries, meeting at the G-8, urged that the world give Egypt, Tunisia and liberated Libya (‘emerging democracies in the Arab world’) some $40 billion in aid. The sum will make headlines but there is less to it than meets the eye.

The G8 is only ponying up $10 billion itself, and that is only in the form of relatively vague promises of a sort that have often not been completely followed through on in the past. It is urging that the Gulf oil states to give $10 billion, though some of them, like Saudi Arabia, were not actually very happy about Hosni Mubarak being overthrown and it is not clear that they will want to help grassroots democratization succeed. That $10 bn. may or may not come through, and if it did it might have strings attached that would actually be undemocratic. Saudi Arabia is very afraid of the outbreak of press freedom in Egypt, which could end its stranglehold over Arabophone journalism and open its authoritarian system to critique. What price would it extract from Cairo for its billions in aid?

Then the G8 is urging that the International Monetary Fund and the World Bank provide another $20 bn., but that aid is likely to be in the form of loans.

But Egypt alone is carrying $80 billion in debt, and its debt servicing costs have risen because its credit rating has been downgraded in the wake of the political crisis.

Tunisia is even worse off, with 1/8 of Egypt’s population but a debt of $50 billion racked up by the Zine El Abidine kleptocracy. Before the crisis, Tunisia had been looking to borrow nearly $3 billion this year just to pay the interest on the old debt and cover budget shortfalls (caused by the ruling class stealing the country blind).

So the G8’s idea of getting these countries further in debt, and making vague promises on direct aid, isn’t probably actually very helpful.

There is, moreover, a contrast to be made here in what the wealthy countries seem to most value when it comes to their financial dealings with places like Egypt. In 1990-1991, Egypt was $50 billion in debt, and then its government joined in the Gulf War against Saddam Hussein’s forces occupying Kuwait. After the Gulf War, $25 billion of the debt was forgiven, i.e., half, which uplifted the Egyptian economy in the early to mid 1990s. Pakistan also got very heavy debt forgiveness after 2001 for turning on the Taliban and allying with the United States and NATO.

If joining a war is worth half a country’s debt, then moving from a military dictatorship to trying to become a democratic country should be worth just as much. That would mean Egypt alone should be getting $40 bn. in debt forgiveness. After all, the debt was incurred by a military dictatorship that did not consult the people, and which was in the hip pocket of the Western Powers. Why should poor Egyptians in Ismailiya and Asyut be held hostage for repayment?

And, the $25 bn. in debt forgiveness for Egypt of the early 1990s was a sure thing, not vague promises and ‘calls’ on other countries and institutions of the sort that just came out of the G8.

It is also true that in the 1990s, US debt was relatively small and that Bill Clinton even had a budget surplus late in his term, whereas G.W. Bush and his Republican majority doubled the national debt and created long term structural deficit with his tax cuts and wars. (Obama’s deficits have been one-off and won’t affect things going forward.). But all that is not the fault of the Tunisian and Egyptian people, though it underlines how much Bush weakened America.

Egypt’s transition to democracy is going to be rocky enough without the albatross of Hosni Mubarak’s debts hanging around its neck. The world community needs to be far more generous and pro-active if Egyptians are going to feel rewarded rather than punished for their remarkable achievement in moving toward popular sovereignty and a rule of law. The same holds true for Tunisia. But Egypt is a fourth of the Arab world and an opinion leader, and its success really would resonate widely in the Arab world and Africa.

The G8 gesture was good as a confidence-building measure, but it is piddling in relationship to the real needs and is short-sighted in its picayune dimensions. It also signals that war-fighting is more valued than democracy-making.

One good thing about the likely victory of the Free Libya forces is that that country’s oil wealth ($26 bn a year) could be used in part to support the new democracies in its neighborhood, while Qaddafi would have tried to undermine them.

6 Responses

  1. Let’s see. They overthrew the despots, so, considering that they (the despots) are the ones who got the loans, then, the new democracies, should just say NO. Let the World bank/I.M.F. collect from the overthrown despots. That’s a fair deal. Why should the everyday people, who have suffered enough, be subjected to more of the same? Jumping out of the frying pan into the fire, is the most stupidest idea I’ve ever herd of.

  2. The debt load is a significant but short-run obstacle. What about weak civil society? Granted, the two issues are related in that the debt burden makes the transition to functioning democratic institutions more difficult. Juan, what’s your reply to Timur Kuran’s argument (see NYT op-ed: link to nytimes.com) that the long shadow of Shariah law continues to darken prospects for strengthening civil society in Egypt and elsewhere throughout the Arab Muslim world? Is this a cultural DNA issue immune to policy fixes or regime changes, even ones sponsored by moderate/progressive forces?

    • Ted. What do you know about shariah law? I would venture to guess that the answer is next to zero except that it’s a good boogyman to bring up when talking about Muslim majority areas empowering themselves.
      Is it the non-predatory banking system you oppose? Or maybe the concept of greater good trumping personal aspirations? Or will you just fox news us with stories of amputated limbs and spousal abuse ( which, of course, never happens in “civilized” countries)

    • Hell, if Islamic law means a hostile environment for white Protestant vulture capitalism, folks in the Middle East might have an advantage over us – now that we can’t use their dictators to enforce the Shock Doctrine. The countries most wedded to Anglo-American greed-worship seem to be faring the worst since the crash, while Latin America and Turkey are being rewarded for overthrowing our neoliberal scam and asserting sovereign rights.

      As usual, the decider will probably be China, now sitting on three trillion dollars of foreign exchange. I’m watching Chinese English-language newscasts and they’ve clearly been hostile to the Arab uprisings, but at the end of the day they need resources and there aren’t many places to go where they haven’t already established a beachhead.

  3. “Confessions of An Economic Hit Man” by John Perkins sums this up quite nicely.

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