Egypt's premier chosen to boost economy

When Ali Lutfi was named Egypt's new prime minister Sept. 4, there were concerns that he would move too fast in slashing government subsidies as a means of solving the country's economic crisis. Yet Dr. Lutfi says he will not move rashly to deal with Egypt's economic problems.

In the first interview since replacing former prime minister Kamal Hassan Ali, Lutfi implied there would be continuity with past policies. He said he would not impose his own views on the country, but would discuss them first with advisers to find the best way of implementing reform.

While Lutfi seemed intent on allaying fears of precipitous change, the prime minister did outline his ideas for reform. Lutfi said he wanted to promote private sector industry and exports, and increased productivity in the public sector. He said loopholes and inefficiencies in the tax collection system should be corrected and that subsidies on commodities should be gradually cut.

Subsidies on staple goods are a volatile issue here. The subsidies eat a large chunk of the state budget, fuel consumer demand, and put a damper on productivity. Yet many observers regard the subsidies as a requirement for domestic stability.

Efforts to reform the subsidy program in the past have met with little success. In 1977, President Anwar Sadat tried it and after widespread rioting he backpeddled. Last fall, when the government cut subsidies on bread, riots broke out in a Nile delta town.

Lutfi admits that ``In our present social and economic circumstances, it's difficult to abolish subsidies. We cannot cancel subsidies immediately.

``At the same time we can introduce some changes in the present system. We cannot stay our whole lives subsidizing for the rich as for the poor,'' he says.

Lutfi's ideas for reducing outlays on subsidies boil down to a three stage operation: first, rationing the subsidies so that only the poor can buy subsidized staples; second, transforming indirect subsidies into direct subsidies; third, gradually changing subsidies on commodities into cash payments to the poor.

Lutfi says he would also increase salaries in the public sector, the main urban employer.

``If I increase salaries for the low income people,'' he said, ``and at the same time I reduce subsidies gradually on some commodities, it would mean in fact an increase in the standard of living of these people.

``If we explain to the people,'' he said, ``they shall accept it easily.''

President Hosni Mubarak appointed Lutfi, a former economics professor, to deal with just such elements of the nation's economic crisis, its cash crunch, and the recent rejection by the International Monetary Fund (IMF) of its request for credit. As prime minister, Lutfi will oversee long-established foreign policies.

In the past year, Egypt posted a balance of payments deficit for the first time in five years. With declines in oil sales, remittances from Egyptians working abroad, and Suez Canal tolls, Egypt is strapped for cash.

A request for stand-by credit from the IMF was rejected, as the IMF chastised Cairo for keeping its currency overvalued and for not moving fast enough to cut subsidies.

The IMF's rebuff to Egypt became an issue here when its conclusions were reported in foreign newspapers. Shortly afterwards, Mubarak replaced Prime Minister Ali with Dr. Lutfi.

The move prompted opposition papers here to charge that the IMF had a hand in Egypt's domestic affairs. It fueled concerns that Lutfi would quickly slash subsidies.

There are, in fact, reports that Cairo is thinking of floating the Egyptian pound, an IMF request. Letting the pound fall to its market value would make exports cheaper and imports more expensive.

The fact that Lutfi's views on subsidy reform were well-publicized added to the concern about rapid change and instability.

``We are not for touching the subsidy system,'' says Muhammad Sid Ahmad, an opposition writer. ``That could be politically explosive.''

Lutfi reiterates that Egypt will move slowly in reforming the subsidy system in order to protect political stability. This, he says, is a bone of contention with the IMF.

``The IMF wants an immediate adoption of the measures without taking into consideration the political and social situation,'' says Lutfi. ``We prefer to adopt the measures gradually taking into consideration the political and social effects.''

According to observers here, President Mubarak replaced Prime Minister Ali partially to give the appearance -- particularly to the US -- of a younger, dynamic government, capable of dealing with the economic plight. Yet some opposition leaders doubt that an ``outsider'' like Lutfi can impose discipline on the more than 30 ministers and ministries in the government.

Whatever the eventual performance of Lutfi, experts here agree that Egypt must move, even if carefully, toward the recommendations urged by the IMF. Otherwise, it will not be able to repay its debts.

``The government must move towards the IMF recommendations,'' says Atef Ebeid, Minister for Cabinet Affairs. ``But you have to open the door slowly or you'll get a draught.''