Egyptian Premier Quits; Split Over Economy Cited

Egyptian Prime Minister Ali Lutfi abruptly resigned Sunday, a move that took most observers by surprise and reinforced speculation of serious differences within the Egyptian government over pending economic reforms.

Although the official announcement said only that Lutfi had resigned, Western diplomats and other sources said they understood that President Hosni Mubarak, reportedly displeased with the way Lutfi’s 14-month-old government was handling Egypt’s worsening economic problems, had dismissed him.

Mubarak immediately appointed Atef Sedki, 56, the chairman of the Central Auditing Agency, Egypt’s equivalent of the U.S. General Accounting Office, as prime minister-designate.

Sedki was expected to announce a new government, retaining most of the 33 ministers from Lutfi’s Cabinet, before the new session of Parliament convenes Tuesday. Government sources said that some changes are expected but that they are likely to “superficial.”

Had Mubarak Mandate

Lutfi, a 50-year-old economist, was appointed prime minister in September, 1985, with a mandate from Mubarak to rescue the economy, which faces a serious cash crisis due to falling oil prices and rising foreign debts, now estimated to exceed $38 billion. More than a quarter of that figure is owed to the United States, which keeps the increasingly aid-dependent Egyptian economy afloat with more than $2 billion in loans and grants a year.

Since taking office, Lutfi has argued that Egypt needs to proceed faster and further with structural economic reforms.

Egypt’s Western creditors, especially the United States, have long maintained that the Mubarak government must take steps to eliminate a crippling and costly system of state subsidies and must also trim imports, raise interest rates and streamline a multi-tiered exchange rate system that overvalues the Egyptian pound.

The International Monetary Fund, with which Egypt is currently trying to negotiate $1 billion in emergency standby credit to help it service its debt, has made further loans conditional on such reforms.

However, Mubarak and other officials, including Planning Minister Kamal Ganzouri, are understood to fear that drastic reform, carried out too quickly, could provoke serious social unrest.

Already, Lutfi’s attempts to restrict imports and phase out some subsidies have created shortages and fanned a 20% inflation rate, problems that in turn are blamed for widespread social disaffection. Bloody riots over attempts to raise the prices of some subsidized foods traumatized Egyptians in 1977, and Mubarak and other officials have repeatedly stressed that they do not wish to repeat that experience.

The debate over economic policy helped to widen differences within the fractious Cabinet and led to a growing number of personality clashes between Lutfi and his ministers, Egyptian and diplomatic sources said. Mubarak, they added, wanted more unanimity in the government than Lutfi was apparently able to inspire.

In what appeared to be a hint of his displeasure with Lutfi, Mubarak said in a letter to Sedki--charging him with forming a new government--that he hopes that the next Cabinet “will respond better to the hopes and requests of Egyptians.” He added that the new government must “formulate a firm plan to control prices concerning the essential needs of Egyptians.”

Although Lutfi’s departure had been expected for several weeks, the fact that it came now, during sensitive and important negotiations with the IMF, surprised a number of diplomats.

Bad Timing

“The timing is very unfortunate,” one senior Western diplomat said. “It gives the impression of instability just when they needed to get their act together.”

Repeated official denials that the government was about to be dissolved--including one issued only hours before the change was announced--reinforced the impression that Lutfi’s resignation had been sudden and perhaps connected with the IMF negotiations.

Sedki, a Paris-trained economist and technocrat, served as one of Mubarak’s advisers when the latter was vice president. He has a reputation of being, in one diplomat’s word’s, a “toe-the-line man” who will follow Mubarak’s lead and seek to forge a Cabinet consensus on major issues. Like Lutfi, he has no real political base of his own.