A vital $4.8 billion International Monetary Fund loan to Egypt will be delayed until next month, its finance minister said on Tuesday, intensifying the political crisis gripping the Arab world's most populous nation.
As rival factions gathered in Cairo and Alexandria for a new round of demonstrations, Finance Minister Mumtaz al-Said said the delay in the loan agreement was intended to allow time to explain a heavily criticized package of economic austerity measures to the Egyptian people.
The announcement came after President Mohamed Morsi on Monday backed down on planned tax increases, seen as key for the loan to go ahead. Opposition groups had greeted the tax package, which had included duties on alcoholic drinks, cigarettes and a range of goods and services, with furious criticism.
"Of course the delay will have some economic impact, but we are discussing necessary measures [to address that] during the coming period," the minister told Reuters, adding: "I am optimistic ... everything will be well, God willing."
Prime Minister Hisham Kandil said Egypt had requested that the loan be delayed by a month.
"The challenges are economic not political and must be dealt with aside from politics," he told a news conference.
Kandil said the reforms would not hurt the poor. Bread, sugar and rice would not be touched, but cigarettes and cooking oil would go up and fines would be imposed for public littering. In a bid to rebuild consensus, he said there would be a national dialogue about the economic program next week.
In Washington, the IMF said Egypt had asked for the loan to be postponed "in light of the unfolding developments on the ground." The Fund stood ready to consult with Egypt on resuming discussions on the stand-by loan, a spokeswoman said.
Gunman opens fire at protesters
On the streets of the capital, tensions ran high after nine people were hurt when gunmen fired at protesters camping in Tahrir Square, according to witnesses and Egyptian media.
The opposition has called for a major demonstration it hopes will force Morsi to postpone a referendum on a new constitution.
Thousands of flag-waving Islamist Morsi supporters, who want the vote on Saturday to go ahead as planned, assembled at a mosque near the presidential palace, setting the stage for further street confrontations in a crisis that has divided the nation of 83 million.
In Alexandria, thousands of rival demonstrators gathered at separate venues. Morsi's backers chanted: "The people want implementation of Islamic law," while his opponents shouted: "The people want to bring down the regime."
The upheaval following the fall of Hosni Mubarak last year is causing concern in the West, in particular the United States, which has given Cairo billions of dollars in military and other aid since Egypt made peace with Israel in 1979.
The turmoil has also placed a big strain on the economy, sending foreign currency reserves down to about $15 billion, less than half what they were before the revolt two years ago, as the government has sought to defend the pound.
"Given the current policy environment, it's hardly a surprise that there's been a delay, but it is imperative that the delay is brief," said Simon Williams, HSBC economist in Dubai. "Egypt urgently needs that IMF accord, both for the funding it brings and the policy anchor it affords."
The IMF deal had been seen as giving a seal of approval to investors and donors about the government's economic plans, vital for drawing more cash into the economy to ease a crushing budget deficit and stave off a balance of payments crisis.
The latest round of unrest has so far claimed seven lives in clashes between the Islamist Muslim Brotherhood and opponents who are also gathering outside Morsi's presidential palace.
The elite Republican Guard which protects the palace has yet to use force to keep protesters away from the graffiti-daubed building, now ringed with tanks, barbed wire and concrete barricades.
The army has told all sides to resolve their differences through dialogue, saying it would not allow Egypt to enter a "dark tunnel." For the period of the referendum, the army has been granted police powers by Morsi, allowing it to arrest civilians.
The army has portrayed itself as the guarantor of the nation's security, but so far it has shown no appetite for a return to the bruising front-line political role it played after the fall of Mubarak, which severely damaged its standing.
Leftists, liberals and other opposition groups called for marches say the hastily arranged constitutional referendum is polarizing the country and could put it in a religious straightjacket.
Mohamed ElBaradei, a prominent opposition leader and Nobel Prize winner, said the referendum should be postponed for a couple of months due to the chaotic situation.
"This revolution was not staged to replace one dictator with another," he said in an interview with CNN.
Opposition leaders want the referendum to be delayed and hope they can get sufficiently large numbers of protesters on the streets to change Morsi's mind.
Islamists, who dominated the council that drew up the constitution, have urged their followers to turn out to show support for the president and for a referendum they feel sure of winning.
The opposition says the draft constitution fails to embrace the diversity of the population, a tenth of which is Christian, and invites Muslim clerics to influence lawmaking.
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