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Egypt says to resume talks with IMF in January

Sarah El Deeb, Associated Press

Egyptian Prime Minister Hesham Kandil talks during a press conference in Cairo, Egypt, Sunday, Dec. 30, 2012. Kandil says his country will resume talks in January with the International Monetary Fund over a $4.8 billion loan, after they were suspended during this month's political turmoil over the now-adopted constitution. (AP Photo/Amr Nabil)

CAIRO (AP) -- Egypt's prime minister said Sunday his country will resume talks in January with the International Monetary Fund, after Cairo suspended its request for a $4.8 billion loan during this month's political turmoil over the now-adopted constitution.

Hesham Kandil didn't specify when the talks will resume. But he stressed that the loan is important to Egypt's efforts to regain investor confidence as his country grapples with a crippling budget deficit and dwindling foreign reserves.

"We need the vote of confidence from the IMF," he told reporters at the launch of a government initiative that appears aimed at calming worries about imminent austerity measures and the health of the economy.

"We hope to have more consensus on the government program. We hope there are no core changes to our plan with the fund," he said.

Talks with the IMF were derailed during large protests against the country's new constitution, passed in a referendum earlier this week. The protests turned violent, leaving at least 10 dead, while disagreement over the charter deeply polarized the country.

As the political turmoil unfolded, the government suspended its loan request, which had been awaiting final approval by the IMF, just after it suspended the spending cutbacks and tax hikes which had been part of the economic program it presented to secure the loan. The measures were likely to fuel more public discontent.

Now, with the constitution adopted, talk of the economic reform program is resurfacing. But the government needs to rally public support for measures that are likely to increase prices for a number of goods and cut back on a huge government subsidy program to ensure aid goes only to those in need.

President Mohammed Morsi has asked Kandil to carry out a limited government reshuffle, which has been highly criticized for failing to tackle Egypt's political and economic crises.

In a speech Saturday to the newly convened legislature, Morsi warned against any further unrest that could harm the already battered economy.

Meanwhile, the central bank said that foreign currency reserves, which have been hemorrhaging for nearly two years, are at a "critical" level — the minimum needed to cover foreign debt payments and buy strategic imports. Reserves now stand at some $15 billion, down from $36 billion in 2010.

Over the past week, fears of an imminent currency devaluation led to a rush to buy dollars, putting further pressure on the Egyptian pound. The worries were fuelled in part by the government's move to cap the amount of foreign currency people can take with them as they leave the country.

On Sunday, the central bank introduced a new auction system for banks buying and selling U.S. dollars. It had urged citizens to "ration usage" of foreign currency in favor of the Egyptian pound.

On Sunday, Kandil said the economic situation was "difficult and critical" but that there was no truth to talking about Egypt going bankrupt, echoing a point made by Morsi a day earlier.

"There is bright light at the end of this tunnel," he said. "There is a plan and a vision for sure to get out of this tunnel. The length of this tunnel depends on us as Egyptians and on the government for sure."

Kandil urged all political players to put aside their differences to work together. His news conference Sunday sought to underline government efforts to revitalize the economy and include stakeholders and the public in a discussion of its economic plan.

He provided little details of the plan, however. Ashraf el-Arabi, planning and international cooperation minister, said discussions will begin as early as Sunday, to ensure "ownership" of the government program so measures can be adopted quickly.