Friday, April 15, 2011

Multilateral Organizations Will Move Forward on a Plan to Assist Economic Development in the Middle East and North Africa (MENA) Region

AFP: Multilateral Banks Join forces to Aid Arab Nations
FT: EBRD Could Start Lending to Egypt
In January 2011, Tunisia’s population overthrew its decades long leader, Ben Ali, because of frustration over economic disparity and political oppression. As the revolutionary wildfire spread to other parts of the North Africa, including Egypt—where demonstrations toppled leader Hosni Mubarak in February 2011—one thing was clear: demonstrators demanded a chance at economic prosperity.
On April 14th, the United States and France announced that a large group of multilateral organizations have pledged assistance to Middle East and Northern African (MENA) countries, in order to foster inclusive economic growth. Multilateral organizations that have pledged support include the World Bank, the African Development Bank and the Islamic Development Bank. The World Bank has already agreed to provide a $500 million dollar loan to Tunisia to support its budgetary obligations. Furthermore, the Untied States has offered to provide generous replenishment to multilaterals, if the banks call for capital increases to facilitate development efforts.
Noteworthy is the prospect that the European Bank for Reconstruction and Development will provide assistance to Egypt, which is a shareholder of the Bank. EBRD was founded 20 years ago to assist Eastern European countries transition from command to market economies and its mandate is limited to those countries. However, with shareholder approval (which is anticipated to go through) EBRD will provide economic assistance to Egypt.
Although the full parameters of the multilateral banks’ assistance package will be announced in May, the plan will likely focus on budgetary assistance to MENA countries and the development of small- and medium-sized enterprises. Commentators warn that economic reforms will be essential in providing stability, as governments will be tempted to “buy peace” by increasing spending for social programs. Some commentators have noted that Washington-based lenders were already working in the region prior to political upheaval this year, and that it will be important to maintain course with respect to reducing those countries’ budgetary deficits, while stimulating the economies. Large budget deficits for countries in the region can create a significant problem by pushing away investors who might fear a government default or devaluation of their investments. Therefore, the multilateral banks’ economic stimulus plan will have to strike the right balance between competing economic and political goals.

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