Mubarak moves to boost Egypt's economy by putting young specialists in Cabinet

The changes in the Egyptian government are an indication of how seriously President Hosni Mubarak views the country's economic plight, observers here say. The government changes, announced on Wednesday, appear designed to reshape and reorganize economic policy.

Prime Minister Kamal Hassan Ali, who was responsible for coordinating economic affairs and reform, resigned after holding his post for 14 months. President Mubarak named a leading economist, Ali Lutfi, to take Mr. Ali's place. Foreign Minister Esmat Abdel Meguid has been elevated to deputy prime minister as has Minister of Agriculture Youssef Wali.

The changes indicate that Mubarak is seeking young specialists and technocrats to lead Egypt out of the morass of its economic problems and to coordinate continuing reform.

Foreign policy -- including the peace treaty with Israel -- will not be affected, according to government officials here. The themes, as well as the major players, will remain the same.

The economic challenges facing the new prime minister are staggering. President Mubarak's instructions are to achieve economic growth without increasing the economic burden on the people -- two goals that may be difficult to reconcile.

In the last year, Egypt has passed through hard economic times. For the first time in five years, it posted a balance of payments deficit, estimated at $1.3 billion by the International Monetary Fund (IMF).

Egypt's main sources of hard currency -- remittances from Egyptians working abroad, oil exports, and Suez Canal tolls -- were hit by the slump in world oil markets. Food subsidies totalling $2 billion a year have placed a heavy burden on the state budget and have fueled domestic consumption. Low prices to the farmer have discouraged agriculture and turned Egypt from a food exporter into a food importer.

The prime minister's office, under Ali, was responsible for initiating reform. Last fall, the government began to cut subsidies on bread, fuel, electricity, and other products. Prices to the farmer were raised to spur production.

But the implementation of these policies ran into trouble. The government had to backtrack after protests against a new customs tax imposed in the free zone of Port Said. In addition, Egypt failed to negotiate a credit agreement with the IMF. The fund issued a report criticizing the pace of reforms and has so far rejected Egypt's requests.

The timing of the Cabinet changes -- before Mubarak's proposed trip to the United States in October -- also indicates that he wants a new government before the visit. Egypt wants the US to cancel or lower interest payments on its military debt. In order to get this, it will need to show economic progress and reform.

Observers expect the current policy of gradually cutting subsidies to continue. A policy of rationing that permits the poor to take advantage of low prices on staples will still remain in force.

The appointment of Dr. Lutfi, a tax specialist and finance minister under former President Anwar Sadat, also shows that Egypt is serious about closing loopholes in the tax system, observers say. Egypt has a progressive income tax, but wealthy individuals and corporations frequently escape it. Lutfi reportedly lost his earlier job for suggesting that the laws on income tax be strictly applied.