Bloomberg News

Egypt Funds Embezzled by Ousted Regime Haunt Mursi’s Rule

November 14, 2012

Aleia el-Sayed never expected President Mohamed Mursi to deliver overnight on his campaign promises of justice that Egyptians demanded in last year’s uprising. More than four months into his presidency, she did think the government would make more of an effort to do so.

Electoral pledges to retrieve billions of dollars in public funds allegedly embezzled by the former regime and retry ousted officials persuaded the 38-year-old mother of five to vote for Mursi. The failure of Mursi’s government to fulfill those promises has fed nationwide discontent over deteriorating living conditions, high unemployment and worsening security amid plans to cut subsidies of basic goods such as cooking gas and fuel.

“No one said the government should have gotten it all back by now -- that would’ve been insanely unrealistic -- but it did not show a glimpse of sincerity in recouping these funds,” el- Sayed said as she scooped her 2-year-old daughter off the ground at an underground station after a day of work cleaning houses in Cairo. “Regaining a piaster is a mere fantasy now.”

Recouping the embezzled funds could become one of the barometers of Mursi’s presidency. It will show how determined he is to bring former officials to task and recover stolen assets in an environment where he’s had mixed results with the judiciary and made little headway with countries that are blocking the money.

‘Solid Will’

“Previous efforts on this by former governments were weak, but there is a solid will now to bring every piaster back,” Legal Affairs Minister Mohamed Mahsoub said by phone. “The new government and President Mohammed Mursi regard this as a priority, another form of regaining national dignity.”

In April 2011, Hosni Mubarak, who was unseated two months earlier after 18 straight days of mass marches and sit-ins, said in his only public speech after the unrest that he had no assets abroad and that he was “deeply hurt” by the accusations that he and his family had misappropriated funds.

Six months later, state-run Middle East News Agency reported that Gamal, Mubarak’s son who was widely seen in Egypt as his likely successor, and Alaa, his older sibling, were found to have $340 million deposited in Swiss banks. Since then, at least 10 ministers in Mubarak’s government and members of his ruling party have been interrogated about or convicted of illicit gains, profiteering and corruption-related crimes, while the Swiss have blocked more than $750 million in Egyptian funds.

‘Tip of Iceberg’

“Frozen funds exceed $1 billion, and this is just the tip of the iceberg,” Mahsoub said in the September interview. While it may take four years to retrieve all the frozen assets, the government expects to get some “much-needed money” in “the next few months,” he said, declining to be more specific.

Egypt recently pocketed $1.8 billion of stolen land and cash as a result of settlements and lawsuits involving 40 businessmen, the state-run Ahram Gate website said on Nov. 10, citing Deputy Attorney General Adel el-Saeed. Legal steps are under way to recover another $9 billion, he was cited as saying.

In the decade before the revolution, Egyptians dubbed their country “Mubarak’s farm,” saying members of the dissolved National Democratic Party and senior officials exploited their positions to multiply their bank accounts as poverty and unemployment grew.

No Better

“Egypt’s money must be returned and embezzlers must be properly punished and a lesson made of them,” said Ahmed Maher, co-founder of the April 6 group, which helped orchestrate the 2011 revolt and was one of the youth groups key in helping secure Mursi’s election. Citing unfulfilled promises made by previous interim governments formed by the military council, to which Mubarak ceded power, Maher said: “The government formed by the elected president hasn’t done any better.”

State-run Al-Ahram reported today that Mursi asked the government, led by Hisham Qandil, to include recovery of embezzled funds in the legislative priorities included in the economic plan it announced yesterday. The plan, which targets economic growth of 3.5 percent and the creation of 700,000 jobs by the end of the current fiscal year, should also prioritize national security and prevent violations of public and private liberties, the newspaper said, citing Mursi.

IMF Loan

Successive governments since the unrest have held talks with the International Monetary Fund about a $4.8 billion loan to bridge the Middle East’s biggest deficit, sparking popular debates about Egypt’s growing dependency on foreign debts. The gap widened to 11 percent of output last year and unemployment stood at 12.6 percent in the second quarter, unchanged from the first and the highest since at least the first three months of 2003. About 1 million Egyptians lost their jobs in 2011 as the economy shrank for the first time in decades.

The frozen assets are “the money Egypt should be using for its development, instead of borrowing,” Maher said in a Nov. 1 phone interview.

With Egypt’s aid program consuming at least 20 percent of state spending in the year ending June 30, the government may revamp energy subsidies to avoid missing this year’s target of a 7.6 percent deficit. The IMF, which insists on broad public support for the loan to close the deal, estimates the shortfall at 10 percent last year, making it the Middle East’s highest.

“They did nothing to get our money back, yet are keen on cutting subsidies,” el-Sayed said. “Where’s the justice in that?”

‘Inflated Expectations’

“There is a case of inflated expectations,” said Yasser el-Shimy, a Cairo-based analyst for the International Crisis Group. “You have this population who expected billions and billions of dollars to descend from the accounts of the former regime. It wasn’t odd to find people planning to quit their work because they thought they were going to have a big windfall of money, and that didn’t happen.”

Mursi’s “great challenge” is managing expectations and containing growing demands by the people he governs, el-Shimy said. This will be a “very difficult balancing act” as he must also impose austerity measures to remove unsustainable subsidies to win the IMF loan, he said.

Promises to retry Mubarak-era officials and speedily return the embezzled fortunes were two elements that drove many liberal voters to overlook their opposition to the Muslim Brotherhood, from whose ranks Mursi was drawn, and vote for him. Those voters gave Mursi a slim edge over Ahmed Shafik, his contender in the runoff who was Mubarak’s last premier and is now facing charges of profiteering along with the former president’s sons.

“We may as well have voted for Shafik,” el-Sayed said. “I’m not a fan of the Brotherhood, never was, and only voted for Mursi because of these two pledges: retrieving the money and punishing the embezzlers. He did neither.”

To contact the reporter on this story: Dahlia Kholaif in Kuwait at dkholaif@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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