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Kandil must resist 'big changes', says economist

Arab Spring economies:  Egypt's prime minister should avoid "shock" tactics that could result in protests, says economist at the American University in Cairo.

Egypt's prime minister has sought in his recent speeches and comments to draw an ideological line between the new government's approach towards a more regulated market economy and the laissez-faire attitude of the Mubarak government, say economists.

"The economic plan is ambitious in the long run, but very cautious in the short term during this critical transition phase for Egypt," said Tarek Selim, an economist at the American University in Cairo.

"The problem is that there is a security risk to making big changes. If they are too harsh, there could be strikes and protests."

Hisham Kandil, the prime minister, has declared that "trickle-down" economics is no longer a policy objective of the new government. It would instead concentrate on creating jobs and economic development, changing its focus from growth by itself to how Egyptians benefit from growth.

His comments are a partial rebuttal of the policies of Gamal Mubarak, who as the son of the president and an influential member of the National Democratic Party took control of Egypt's economic policy for much of the 2000s.

Although he held no government post, his father allowed him to bring prominent businessmen into the cabinet.

Their policies gave rise to unprecedented economic growth, but also criticism that the benefits were not reaching everyday Egyptians. About 40 per cent of the country's 83 million people still live in on less than $2 (Dh7) a day, according to the World Bank.

Popular anger against what many saw as an era of crony capitalism was a key accelerant in the uprising against Mr Mubarak in January last year. Mr Selim said the country was facing grave challenges.

Foreign reserves have been dangerously depleted and foreign direct investment has fallen sharply after the uprising. The unemployment rate is above 12 per cent.

"These problems require big changes, but we cannot use shock therapy," he said.

The removal of subsidies for fuel used in high-end cars, called 95 Octane, would have little impact on the country's spiralling energy subsidy problems, but Mr Selim said it served as an important "signal" to Egyptians that more changes are on the horizon.

bhope@thenational.ae