How USAID underwrote Egyptian corruption
Issandr El AmraniThis is an important story in the Washington Post about the USAID underwriting of Egyptian crony capitalism in the 1990s and 2000s:
Formed with a $10 million endowment from the U.S. Agency for International Development, the Egyptian Center for Economic Studies gathered captains of industry in a small circle — with the president’s son Gamal Mubarak at the center. Over time, members of the group would assume top roles in Egypt’s ruling party and government.
Today, Gamal Mubarak and four of those think tank members are in jail, charged with squandering public funds in the sale of public resources, lands and government-run companies as part of a dramatic restructuring. Some have fled the country, pilloried amid the public outrage over insider deals and corruption that toppled President Hosni Mubarak.
“It became a crony capitalism,” Magda Kandil, the think tank’s new executive director, said of the privatization program advocated by its founders. Because of the corruption, the center now estimates, the assets that Egypt has sold off since 1991 have netted only about $10 billion, $90 billion less than their estimated worth.
For years I’ve singled out, in various places, the innapropriateness of putting economic liberalization in the same basket as democracy promotion and development, which the US systematically did in its aid and foreign policy since the 1980s. Egypt is an egregious example. Economic assistance to Egypt by USAID for much of the 1990s and early 2000s was largely in terms of the Commodity Import Program which provided guarantees to banks that gave Egyptian importers of American goods letters of credit. It was not, as no doubt many Americans imagined, developmental work on health, education or infrastructure.
Moreover, the US — the embassy in Cairo, the State Department, Congress and successive administrations — also gave full political and financial backing to organizations such as the American Chamber of Commerce and ECES (they have a huge overlap). The accounts of these organizations should be investigated — many are known to be run with very superficial oversight. They are also a nexus of political influence, reminding us that in many respects the US was part and parcel of the Mubarak regime — or wings within it.
Reader Comments (9)
So, you are saying that economic building was part of corruption ? You targeted two methods here, and put little information regarding who was responsible in using that money, and where it went. Egypt, however, had businesses and those involved doing well, and while they were doing well, had those involved kept a lot of people poor. I will look into your sources, and take a look on what you claim. If you study global, economic and foreign policy - you see more.
You should re-read the article you referenced. It said that ECES used the funds, and where warned later when others saw corruption from ECES. It was "vertically" placing those who ran that think tank in full position of all benefits of how they sold, privatized, and gained. "vertical" means that they placed everything in line with their own interests. Having too much control on who owned what, and how. So, in essence they took the money for economic purposes, then they sold off public property/businesses, and then had interests in those very same companies. Free Market policies are good because they build up the economy, but they way they did this was wrong. There were not instituting "balance". The owners and profiteers of those that benefited from those sell offs, and they sold off low. Now, money was not going to areas except for private initiatives. USAID funds were for economic development, when Egypt was hard hit. Not to take over everything. But that is what the players of ECES did. The article you referenced went into more. Very interesting.
What does a research think tank has to do with corruption? they have no rights to issue laws or force or dictate the government by any means to do anything out of their will. Al the talk about privatization and free-market is already academically proven as best case scenario and for those who say otherwise and consider it a foreign enigma, primitive free market polices were adopted by the Muslim prophet and his companions. Maybe you should take a look at ECES' publications. The Washington Post misquoted Dr. Magda twice in that same article once about privatization and once more about Dr. Taher Helmy, and it seems that they went in there with a preliminary idea and all they wanted to do is twist quotes to fit their scenario.
I don't know, the Post article seems awfully sloppy and quick to jump to conclusions. There are a few separate ideas the article tackles. The first is privatization, which obviously Egypt didn't handle well. There was undoubtedly tons of corruption involved, and it was probably done with poor timing. However, the article then goes on to implicate that Helmy and others were advocating for these policies out of a desire to specifically help out his friends in industry. That is a big leap to make, especially when this was the "Washington Consensus" at the time. The article also targets Helmy for advocating slashing the corporate tax rate to 20% and saying how it benefited Ezz. That's just a cheap shot, unless there is some evidence linking the two. I mean, of course Helmy is going to advocate for lower corporate taxes, just as Republicans do in the US.
As to the US role, the article tries to throw some scary numbers around, but it seems like what really happened was that the US has subsidized pro-business groups like AmCham and ECES for somewhere in the $10 to $20 million range. Some of the policies they advocated for were then adopted, including privatization, which then led to potentially billions of dollars of losses for the Egyptian government. But saying that all this corruption had "an American root" seems a bit harsh and misleading. The article was also misleading about Telecom Egypt, saying it was sold, implying that one of Egypt's tycoons picked it up. But actually it went public via an IPO. (Of course, that was also handled poorly, corruption was involved, shares plummeted soon after the IPO and a bunch of people got out quick and made millions, but going public is very different from being sold to a government-favored capitalist like what happened with many banks and factories.)
On the substantive level, I'm curious to see the ECES paper about the value of privatizations, I don't see it on their website. Government-run factories aren't known for their high levels of productivity or efficiency, and were often costing the government money to operate rather than generating a profit. The value of a business that is losing money is usually low.
Lastly, it's a little frustrating to see ECES singled out for attack like this, since they provide by far the most rigorous economic analyses of what's going on with Egypt's economy. Sorry this was so long!
The free market and privatization as practiced today are in many, if not most cases, euphemisms for "get all you can while you can." American political and financial interests have been a root cause of global conflict and robber baron activity for more than a hundred years. It's going on in the Middle East and West Papua where the free market claims the right to level the land and exploit workers in search of gold for the corporate benefit of Freeport-McMoran and Rio Tinto.
What I posted is not to the specific point of the US involvement in Egypt but given the overall context of American behavior throughout the world I hesitate to dismiss claims of American wrongdoing when it comes to influencing foreign governments' economics and politics.
Rashad,
I think the funding of AmCham and other projects backed by people known for their corrupt practices shows a lack of judgement, or perhaps more accurately, character — since they knew precisely what they were doing.
I suggest there is a difference between American governments promoting privatization, and knowing about and approving the corruption in the Mubarak regime that resulted in favored few getting fire sale prices on lots of the Egyptian state owned organizations.
It is true that USAID has been corrupt for a long time; repeatedly promoting actions by foreign governments that are solely beneficial for one or more American corporations, most often detrimental for the citizens of the each such foreign country. But that is not the same as American civil servants promoting and approving of Mubarak and his family (because I get the impression Mubarak's wife was deeply involved in a number of these actions) making a killing by robbing their own country blind.
I also suggest that every human can become quite corrupt, to the point where they are oblivious to the significant immorality of their actions. For example, supposedly as Khaddafi was dragged from his drain pipe hiding location, just before being shot and killed he stated "why are you doing this to me, what have I done to you?".
Okay, for those who don't understand what happened: The way they did it was very suspect. Acting or being vertical means that they have control over every aspect. The amount of the sale of the Gov. Assets, who gets what and for what price, and how to profit from every aspect concerning each business from that. "Vertical" or acting "vertical" means that a company or more then one company, takes part in "product development and sales" and they have more control over how those services or products are made thru sales. They work with other businesses to do this, as in partnership. Now, if you have a business that is going to handle selling off gov assets, you control the monetary value of that assets to sell to someone that you also have an interest, then profit off of each part, it means you have too much interest in selling off that asset low, and not at a good market value. This is where corruption begins. Not having a separate entity to insure that assets are not under valued during a sale, or that certain assets are not sold at all, did not happen here. No one was watching the chicken coop, when the foxes came.
A healthy business model, would have had someone watching over the government assets, to ensure that this would not happen. Privatization is only good if the goods and services are handled properly. If you gain from under valuing an asset, then there is a problem. If I owned property and had someone selling it for me - I would want to make sure they had no interest on the other end to gain from selling my property too low. A real market value is important. If I owned the property, and had interest in selling it low - that is my business. When a person who is suppose to represent a Government and it's people, then I should be watching out for the Government, and it's people - not the business entities that on the other end.