Exclusive - Egypt's Islamist candidate says IMF deal unlikely

CAIRO (Reuters) - Egypt's Muslim Brotherhood has warned the government it will not support an IMF loan unless the terms are changed or it moves aside and allows a new administration to oversee how the funds are spent, its candidate for president said on Sunday.

\

The government has been negotiating a $3.2 billion (2.0 billion pounds) loan with the International Monetary Fund (IMF) to help it avert a balance of payments crisis caused by the political and economic turmoil of the last year, and an IMF technical team is now in Cairo.

The IMF has said that before it agrees to a loan, the government must first sell the plan to the country's political groupings, especially the Muslim Brotherhood's Freedom and Justice Party, which won nearly half the seats in the new parliament.

"We told them (the government), you have two choices. Either postpone this issue of borrowing and come up with any other way of dealing with it without our approval, or speed up the formation of a government," Khairat al-Shater said in an interview.

He said he realised the country's finances were precarious and a severe crunch could come by early to mid-May as the end of the fiscal year approached, but that this was the government's problem to resolve. Egypt's fiscal year runs to June 30.

"It is not logical that I approve a loan that the transitional government would take for two or three months, then demand that I, as a permanent government, repay," he told Reuters.

The government has been financing much of its fiscal deficit by borrowing from domestic banks, which are reaching the limits of their ability to lend.

"I have to agree to a loan, somebody else gets to spend it, then I have to pay it back? That is unjust."

The Brotherhood could also accept a loan if the size of the initial disbursement were reduced so that most of the funds were paid out after the completion of a presidential election in June, when a new government is scheduled to take power, Shater said.

"We are not opposed in principle. We are opposed to the timing and the method of implementation," he said.

"If it were $500 million instead of a billion and a bit, and there was a clear plan on how it would be spent, we might take another look at it," Shater said.

FOREIGN RESERVES

Planning Minister Faiza Abu El-Naga said on April 2 that she expected the government to sign a memorandum of understanding with the IMF within a few weeks and seal a final agreement by June, when half of the loan would be disbursed.

Egypt has spent more than $20 billion in foreign reserves since last year's uprising to prop up its currency, limiting its slide to only 3.65 percent against the dollar since January 2011 despite the loss of some of the country's main sources of foreign exchange.

Egypt's reserves fell another $600 million in March to $15.12 billion. This is equivalent to less than three months worth of imports and includes $4 billion in gold bullion the government would be reluctant to draw down, economists say.

Shater, a businessman, said he strongly supported a market economy. He added that a lack of government resources would force Egypt to rely almost exclusively on private investment to build infrastructure over the coming two to three years.

The formation of a permanent coalition government would benefit Egypt in this regard as well, Shater said.

"When we met with lots of investors around the world, all of them said they would not begin investing until there was a permanent government or presidential elections. But in this current situation, nobody wants to enter the country," he said.