1. Egypt's Perfect Economic Storm
- Author:
- David P. Goldmann
- Publication Date:
- 06-2012
- Content Type:
- Journal Article
- Journal:
- The Journal of International Security Affairs
- Institution:
- Jewish Institute for National Security Affairs
- Abstract:
- A year after the overthrow of Hosni Mubarak, Egypt's economic crisis has become a uniquely severe event. Markets are now forecasting a devaluation of Egypt's currency by about two-thirds, as capital flight and an enormous structural trade deficit exhaust the country's foreign exchange reserves. With perhaps half of Egypt's population living on $2 per day, a major devaluation would price basic necessities out of the reach of tens of millions of people, despite the country's extensive (if inefficient) system of subsidies. The crisis seems uncontainable; Egypt's central bank appears to have exhausted its capacity to borrow from the domestic market, and is at odds with prospective foreign donors. As a result, Egypt now faces a financial collapse similar to those in over-indebted Latin American countries during the 1980s and 1990s, except with a crucial difference: the Latin Americans are all food exporters, while Egypt imports half its domestically consumed foodstuffs. The difference between Egypt and a Latin American banana republic is the bananas. This is an unprecedented state of affairs, a perfect economic storm. Egypt imports half its caloric consumption and is the world's largest importer of wheat. Economic collapse will “transform a peaceful revolution into a hunger revolution,” the second-in-command of Egypt's Muslim Brotherhood warned on February 3rd.1 After months of refusing to bargain with the International Monetary Fund (IMF), Egypt's government has begun negotiations for a $3.2 billion loan, or less than the amount of capital flight in December alone. But the involvement of the IMF has done little to reassure Egyptian investors. And on February 11, 2012, Egypt's Finance Minister said that his country would need $11 billion in external aid.2 Moreover, as of this writing, Egypt's insistence on prosecuting American democracy activists threatens to shut off American aid at a critical moment. It is possible that Egypt's leaders have abandoned hope of forestalling the crisis and are directing their energies instead toward finding a foreign entity to blame. Even under the most benign political conditions, though, it is unlikely that the West or the Gulf States would offer Egypt aid on the scale required to prevent a crisis. Unlike other countries threatened by famine, Egypt's requirements simply are too great for the rest of the world to shoulder for an extended period of time. Its governance, moreover, is so corrupt that its capacity to use foreign aid is in doubt. The most likely outcome is a humanitarian catastrophe too large for the rest of the world to ameliorate, and a political outcome too chaotic to permit large-scale humanitarian intervention, like Somalia. An implicit assumption of public policy is that all problems have solutions. Egypt appears to be an outstanding exception, a major nation in existential crisis for which no solution will be found.
- Topic:
- Markets
- Political Geography:
- America, Latin America, Egypt, and Somalia