A recent address by , the American ambassador in Egypt, will probably cause yet another wave of anti-Welch complaints. Gamal Essam El-Din reports , US ambassador to Cairo, has made a habit of being publicly critical of Egypt. A year ago Welch spoke to the American Chamber of Commerce (AmCham) about Egypt's democratic deficit; at this year's AmCham annual meeting on 31 May, Welch lambasted Egypt's lacklustre economy. Welch's speech was entitled The Egyptian Economy: Progress and Prospects. While expressing cautious optimism regarding the economy's performance in 2004, Welch said he hoped people do not go away from his speech "thinking that everything is going just right on economic policy". "Frankly," Welch said, "I am even a little concerned that the rejuvenation of reform in 2003 seems to have waned in recent months." The ambassador had several recommendations on what needed to be done to solve the problem. Foremost among the highly controversial measures he mentioned was speeding up privatisation, scrapping subsidies, lowering tariffs and customs on imported goods, overhauling the banking system and improving the investment climate. He also called for government transparency and increased freedom of action for business and civil society. To provide enough employment opportunities for new job entrants, Welch said, Egypt needs more, not less, of its economy in the hands of the private sector. "That means more foreign and domestic investment in new projects, but it also means reviving the privatisation programme. Now is not the time for half measures," warned the ambassador. "In the competition for foreign investment, if you're standing still, you're falling behind." Welch also compared Egypt's economy with other emerging economies. "Foreign investment in Thailand has averaged over $4 billion annually in recent years; in Poland, $7 billion or more. And Egypt? Well under $1 billion annually the past three years. Rather than moan that fact, Egyptians should learn from it: study what those countries are doing right and copy it," Welch said. While private capital flows to developing countries topped $187 billion in 2003, "Egypt attracted less than one per cent of that," Welch said. Warning the government that state-led solutions can be double-edged swords, he said, "higher subsidies means bigger budget deficits, which in turn can drive interest rates and frighten off foreign investors and the jobs they bring. Higher tariffs may protect the jobs of those in a particular industry at the cost of higher prices for everyone else." The US ambassador then asked the government to implement a very controversial measure -- relinquishing price controls on pharmaceutical products. The other side of low pharmaceutical prices, he said, "is lower production and investment in the industry, leading to fewer jobs, and in extreme cases, the disappearance of drugs off pharmacy shelves and onto the black market, where they can fetch much higher prices." Welch suggested that the implementation of a Free Trade Agreement (FTA) between Egypt and the United States depended on Egypt implementing a variety of radical measures. The government had already embraced some of these, Welch said, such as the decision to lower tariffs on clothing and textile imports, but customs reform remained the most important prerequisite for an FTA. Welch also urged the government to drop its ban on meat product imports by a prominent American firm. Welch lauded the most controversial economic decision taken by Egypt in recent years -- floating the pound. "The pound's depreciation, in many ways, accomplished exactly what the economic textbooks say such a step should do: exports and local production became more competitive, imports became more expensive, the trade deficit dropped substantially, and the balance of payments improved." All of this, Welch predicted, would be even more in Egypt's favour in 2004. Economic researcher Ahmed El-Sayed El- Naggar of Al-Ahram's Centre for Political and Strategic Studies said he was not sure of the "capacity in which Welch is delivering an agenda about economic reform in Egypt". In any case, said El-Naggar, "Welch's agenda is truly disastrous. It reflects a very liberal point of view that does not take the social realities of this country into account." El-Naggar also said, "Welch's praise for the pound floatation provides me with more proof that this decision was taken as a result of American pressure." Economic analysts have argued that the decision to float the pound originated with a high-profile Egyptian delegation's visit to the United States in January 2003, as a way of supporting the delegation's attempts to secure an FTA with the US. "We all know that the decision was taken too quickly, and without solid preparation," El-Naggar said. "The result is that millions of poor Egyptians paid dearly in the form of an astronomical rise in prices and the dramatic flight of capital from the country." El-Naggar warned that some of Welch's economic prescriptions are more in the US's interests than in Egypt's. "Take, for example, his call for relinquishing controls on drug prices. [Although] this would benefit US drug companies in Egypt, a decision like that could raise prices to astronomical levels beyond the reach of the vast majority of Egyptians." Said El-Alfi, chairman of parliament's economic affairs committee, also refuted Welch's suggestion that the lack of banking and customs reform was to blame for the drop in investment inflows. "We all think that privatisation of banks will happen one day, but we believe this step must be taken very carefully. The same thing applies to subsidies because decisions on these issues are more political than purely economic." While Welch's criticism focussed on the economy, his annual AmCham speech also touched on politics, albeit in a much more subdued manner. The US ambassador praised Egypt for its leadership role in the Arab world. Egypt's hosting of the Alexandria reform conference as well as a major African IT conference, and its efforts to revive the postponed Arab League summit and diplomatically pursue the Quartet's "roadmap" to restart Israeli- Palestinian negotiations, all reflected this role. Moving on to Iraq, Welch said that every American citizen was deeply shocked by the revelations of torture perpetrated by US forces. "I want to assure everyone that we will do our best that those who perpetrated these crimes be penalised." The ambassador declined to answer a question on whether Egypt was invited to the Group of Eight summit scheduled for 8-10 June in the US. The meeting, Welch said, would discuss Middle East reforms, African development, global economic growth, and nonproliferation. The US hopes the summit will bolster and amplify "voices of reform" in the Middle East. "The most recent example of those voices of reform," Welch said, "came from the leaders of the Arab League themselves, who, in a summit statement last week, gave very, very strong leadership to the effort on reform, including democracy, educational opportunity and economic opportunity."
