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Egypts new finance minister faces daunting task

Egypt's new finance minister is a U.S.-educated economist who will need all his training to help pull his country out of an acute financial crisis aggravated by renewed political turmoil. Ahmed Galal, managing director of the Cairo-based Economic Research Forum since 2007 and for 18 years a researcher at the World Bank, said he had accepted the post of finance minister in the army-backed government of Prime Minister Hazem el-Beblawi. The budget deficit has widened dangerously over the last few months, pushing Egypt close to bankruptcy as it runs out of sources of finance. Economists say $12 billion in aid offered to Cairo by Gulf states last week will last only a few months unless new revenue is found or spending is slashed. Economists expect the budget deficit to have swollen to about 15 percent of gross domestic product in the financial year that ended on June 30. Galal, Egypt's sixth finance minister in less than three years, will struggle to convince his angry compatriots to accept economic austerity after 30 months of political chaos that has pushed many of them into poverty. Those familiar with his academic work say it has focused not just on economic growth but on ensuring that the poor benefit.

"Dr Galal describes himself as an 'eclectic' economist. He has been a long and firm believer in the importance of inclusive growth and education in contributing to inclusion and competitiveness," said Amina Ghanem, a former deputy finance minister."Fiscal policy for him would not be a budget deficit number, it would be about growth, empowerment and human development," said Ghanem, who served under four finance ministers until shortly before Mohamed Mursi was elected president in mid-2012. The army ousted Mursi, Egypt's first freely elected leader, on July 3 after millions of Egyptians poured into the streets to protest against the Islamist president and his government. Galal received a doctorate in economics from Boston University in 1986 after graduating in business administration from Cairo University.

During his 18 years as an economist at the World Bank he concentrated on the Middle East and North Africa. He later headed two Cairo-based think-tanks, the Egyptian Center for Economic Studies and the Economic Research Forum. MARKET ECONOMICS In a July 2011 ERF paper, Galal said competitive markets should be allowed to allocate resources, improve production and encourage innovation, but should be regulated to prevent anti-competitive behavior and promote a more egalitarian society.

"Markets do not function in a vacuum and generally do not produce the best outcomes for society on their own," he wrote."Safeguards are necessary to protect consumers from exploitation and ensure that workers have the right to decent working conditions and fair pay."Galal took the last government of Hosni Mubarak, who was ousted in a popular uprising in early 2011, to task for carving out special deals to please its supporters, such as land allocations and large contracts."The model relied excessively on market forces, without effective measures to curb abuse of market power, prevent corruption or reduce extreme poverty," he wrote. Since the anti-Mubarak uprising, which drove away tourists and foreign investors, two of Egypt's main sources of foreign currency, the country has struggled to pay for imports.

Iceland to repay early a fifth of imf, nordic loans

The Icelandic government said on Thursday it would repay early a fifth of the billions of dollars of loans it received from the International Monetary fund and its Nordic neighbors in the wake of the collapse of its banking sector in 2008. The early repayment of the loans is a symbolic step for the country of just 320,000 people on its road to recovery from a financial meltdown that left its economy in tatters and its name a byword for the ravages of the global financial crisis. The government said in statement it would prepay 116 billion Icelandic crowns ($909 million) of the loans this month - 55.6 billion to the IMF and 60.5 billion to the Nordic countries - that had been slated for repayment over the next few years."The prepayment amounts to just over 20 percent of the funding from the IMF and the Nordic countries in connection with the IMF-led standby arrangement," it said.

"The decision to make the payment was made in view of the Treasury and the central bank's relatively strong foreign currency liquidity position in the near term."Iceland's main commercial banks collapsed in the space of a week as the global financial crisis struck in late 2008, imploding under the weight of huge debts built up during an aggressive overseas expansion. The Icelandic government was forced to seek aid from the IMF and its fellow Nordic countries to stabilize the economy and impose rigid capital controls to avert a complete collapse of the North Atlantic country's currency.

Iceland has recovered unexpectedly strongly since the meltdown though the government had to move to plug loopholes in capital controls this week to protect its still vulnerable currency. The economy, once dominated by banks that had swelled to almost ten times the gross domestic product (GDP), expanded last year for the first time since the crash and Iceland recovered its investment-grade credit status with ratings agency Fitch in February.

The repayment to the IMF covered loans maturing in 2013 while those being repaid to the Nordic countries covered maturities coming due in 2014 and 2015, as well as a portion of 2016 maturities, the finance ministry said. Repaying the loans, which originally totaled 3.4 billion euros at current exchange rates, would reduce the Treasury's gross debt by about 3.4 percent of GDP and external liabilities by around 6.6 percent of GDP, it added."Today's transaction is an element in paying down short-term debt, thus reducing the expense associated with the holding of the central bank's foreign exchange reserves without increasing refinancing risk or depleting the reserves," it said.