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The UK rejected Israeli pressure to assist Egyptian President Hosni Mubarak during Egypt’s worst economic crises, nearly five years after he took office, according to newly revealed British documents.
In mid-July 1986, Mubarak embarked on a last-minute European tour of the UK, France, and Germany to seek support for Egypt’s position in negotiations with the International Monetary Fund (IMF). A special financial report prepared for Prime Minister Margaret Thatcher ahead of Mubarak’s visit noted that the Egyptian president was expected “to seek help in dissuading the IMF from imposing draconian conditions”, according to the documents unearthed in the British National Archives.
The report predicted that such conditions “would threaten Egypt’s internal order.”
At the time, Egypt’s economic situation was dire: the budget deficit had reached 16 per cent of GDP, inflation had soared to 30 per cent, and external debt stood at $50 billion—150 per cent of GDP—with more than $10 billion in arrears. British estimates suggested that Egypt’s foreign currency reserves could cover only a few days’ worth of imports.
Faced with a collapsing economy, Egypt was forced to turn to the IMF, which imposed extremely harsh conditions. This deeply alarmed Mubarak’s regime.
Based on the economic and financial indicators, the British ambassador to Cairo predicted that one of the objectives of Mubarak’s European tour was to “exert pressure through Western leaders on the International Monetary Fund to ease its demands for more stringent economic reform measures.”
Another report from the Foreign and Commonwealth Office advised that the West “cannot rescue Egypt from economic crisis” and could only “continue to provide support” for the action taken by the Egyptian government. It recommended maintaining a “fine balance” between necessary reform and political stability. The report concluded that the long-term benefits of bold economic and financial measures “could outweigh short-term political risks.”
In another briefing report for Thatcher, it was advised that Egypt under the Mubarak regime was “extremely vulnerable politically” to Muslim fundamentalism, declining remittances from Egyptians abroad, and population growth of 3 per cent”.
The report further warned that the Britain “don’t want to push it over the edge”. It was acknowledged an extremist government in Egypt “would be a devastating setback” but the report concluded that the balance between the inevitable tough economic reforms and the potential political risks was “very difficult to strike”.
Thatcher was advised to “be very careful not to give (Mubarak) the impression that we can get him off the hook” as there is no easy way out.
The IMF’s proposed prescription included two major conditions; raising interest rates from 11per cent to 20 per cent and unifying exchange rates within one year.
Politically, tensions in Egypt and the region were also rising. Between June 1984 and March 1986, a group called the “Egypt Revolution Organization” assassinated three Israeli diplomats in Cairo, including a Mossad officer. In August 1985, an Egyptian soldier, Suleiman Khater, killed seven Israeli tourists. He was later found hanged in his cell, sparking widespread public outrage in Egypt.
These events caused significant concern in Israel, where some began to describe peace with Egypt as being in limbo. Israeli leaders sought to preserve the fragile peace and viewed Mubarak as essential to that effort.
Mubarak had come to power in October 1981 following the assassination of President Anwar Sadat, who was killed by extremists angered, among other domestic issues, by his peace treaty with Israel as an act of treason. Mubarak’s regime was seen by many Israelis and some Egyptians as a “strategic treasure” for Israel.
At the same time, Israeli Prime Minister Shimon Peres, leader of the ruling Labour Party, was embroiled in a political struggle with the opposition Likud Party. He hoped to reach an agreement with Egypt over the disputed Taba resort, which would bolster his political standing.
Ahead of Mubarak’s meeting with Thatcher on 17 July 1986, Peres’s foreign affairs adviser called Charles Powell, Thatcher’s private secretary, in the middle of the night. He conveyed that Peres hoped Thatcher “would be as forthcoming as possible towards any request from President Mubarak for help in overcoming Egypt’s economic difficulties,” according to the UK Prime Minster Office records. Peres argued that Mubarak’s “courageous leadership deserved recognition.”
The Israeli adviser said Peres hoped the UK would respond positively, both as a sovereign nation and as the president of the European Community, noting this would be “a significant contribution to peace and stability in the Middle East” and helping “preserve peace between Egypt and Israel”.
However, the adviser admitted that he did not know exactly what Mubarak would request but “assumed Mubarak would be seeking further financial help”.
During his meeting with Thatcher, Mubarak emphasised that Egypt faced severe economic problems. He noted that Egypt’s loans “were not well phased and repayments would be at a peak over the next three years”.
Accepting the IMF’s terms, he warned, would risk “grave risk of instability,” including a repeat of the 1977 bread riots; they were spontaneous mass protests triggered by the increase in commodities’ prices after the removal of food subsidies under Sadat’s government.
“Egypt would be thrown into turmoil, and the whole region would be affected,” Mubarak cautioned. He hoped for support in implementing economic reforms “sensitively.”
At the time, reports indicated that the British and German executive directors at the IMF were among the strongest opponents of any IMF flexibility. Mubarak, therefore, appealed to Egypt’s allies to persuade the IMF to negotiate “more reasonably.” While acknowledging that the IMF’s recommendations were ultimately “in Egypt’s interests”, he stressed that “people had to eat” and he could not implement reforms at the pace demanded by the IMF.
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Despite Mubarak’s warnings, Thatcher insisted that reaching an agreement with the IMF was “an essential step in restoring Egypt to economic health.” While expressing “considerable sympathy” with Egypt’s difficulties and recognising “its strategic importance” and the political constraints facing Mubarak, Thatcher argued that the IMF “would need to be convinced that he (Mubarak) really had gone to the limits of what was feasible”.
She emphasized the importance of setting “tough targets” and stated she would “look again at the instructions” given the UK”s IMF representative but would not ask him to do anything “basically unreasonable.”
A few days later, the UK Treasury, economic and finance ministry, concluded that pressuring the IMF over Egypt’s economic reform negotiations would be “unwise.” A Treasury report noted that Mubarak had also appealed to the French government, whose response, like the UK’s, was “to encourage Egypt to come to terms with the Fund as a precondition of future help”.
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