D. I. VINITSKY

In-house correspondent for Asia and Africa Today magazine in Egypt

Egypt Keywords: "Arab spring", economy, finance, crisis

At the end of 2011, on November 24, the Central Bank of Egypt, in order to keep the financial and economic situation under control, was forced to take extreme measures, raising its key interest rate for the first time in three years. At the same time, the Central Bank acknowledged that intervention justified by the need to reduce inflation risks may not be sufficient, since the political crisis in the country continues to affect purchasing power and the investment climate.

The reason for such unpopular and even dangerous steps in the current economic situation in the country was a new wave of anti-government protests, the scale of which, according to many local and foreign observers, could exceed the critical mass and result in a second, now "November revolution". Cairo's At-Tahrir Square, which has become famous all over the world over the past year, was once again filled with protesting masses, tear gas, the screams of the wounded, and the wailing of ambulance sirens. The picture would seem familiar enough for recent months in the Egyptian capital, if we do not take into account that the wave of violence swept it a week before the start of parliamentary elections, which were pinned with great hopes of ending the "time of troubles".

Hazem Beblaoui, former finance Minister of Egypt in the transitional government of Issam Sharaf, said that the recent demonstrations in Al-Tahrir Square pose a real threat to the Egyptian economy, which cannot afford such negative manifestations.¹

Under these circumstances, it is not surprising that Egypt's battered economy and the officials trying to keep it afloat have succumbed to the full weight of instability, falling incomes and rising costs, fears of foreign investors, and the relentless global financial and economic squeeze. Despite expectations, Egypt's Financial Policy Committee raised the deposit rate from 8.25% to 9.25%, and the lending rate from 9.75% to 10.25% ^.2 As a result, the exchange rate of the national currency passed the psychologically critical threshold of 6 Egyptian pounds per US dollar.

The global reaction was immediate. On the same day, the rating agency Standard & Poor's downgraded Egypt's long-term sovereign credit rating in national and foreign currencies from BB - to B+ with a negative outlook. "The downgrade reflects our view that the precarious political and economic situation in Egypt has further worsened," the agency's dry and unqualified verdict read ³.

WHAT THE NUMBERS SAY

Some local economists are still optimistic about Egypt's future.

However, a close examination of economic indicators shows that the country is not moving towards stability at all. On the contrary, it quickly slides in the opposite direction. Since the spring of 2011, the Egyptian economy has been rapidly deteriorating, although when viewed from the outside, it seems that if not progressive development, then no more than stagnation. However, the numbers are inexorable. Egypt, which only a few years ago could have proudly claimed 7% annual growth, which, under the impact of the severe financial and economic crisis of 2008-2009, only slowed down to 4.7% in 2009, now finds itself on the verge of economic collapse.-

dynamic collapse. According to the results of the 2010 - 2011 financial year (July 2010-June 2011), GDP growth does not exceed 1.8%⁴. This is the lowest figure in the last decade. Forecasts for the 2011 - 2012 financial year also do not inspire optimism - no more than 2

The Egyptian stock market index has fallen almost 48% since the beginning of 2011, losing $ 190 billion. Egyptian pounds ($32 billion) and earning the dubious distinction of being one of the most devalued in the world after Greece ⁵. The tourism industry at its peak reached 12% of the country's GDP. Over the past year, the tourism sector, which directly or indirectly involves about 10% of the nearly 85 million population, has missed at least $3 billion. The flow of foreign direct investment was on the verge of coming to a complete standstill: by November 2011, it had fallen from $8.1 billion to $2.2 billion. on a year-on-year basis, it continues to grow smaller: investors are spooked by prolonged political instability and uncertainty.

At the beginning of 2011, even before the revolution, Egypt's foreign exchange reserves stood at $36 billion. But immediately after Mubarak's overthrow, they began to melt at an ever-increasing rate - during the first half of the year, $1 billion was spent monthly. monthly maintenance costs doubled by the end of 2011. At the beginning of December, the volume of gold and foreign exchange reserves decreased by almost half - to 20 billion rubles. And in January 2012, according to preliminary data, this figure decreased by another $5 billion. taking into account the costs of the electoral process and the need to repay current obligations ⁶.

The country's budget deficit in the current fiscal year will be at least 9% of GDP, compared with 8.1% a year earlier. At the same time, Egypt's external debt already exceeds $35 billion. (16% of the country's GDP, which was $218.466 billion ⁱⁿ 2010.7) will continue to grow as financial officials desperately try to find a way out and stop the collapse of the economy.

"Egypt is currently going through a critical period and is on the verge of bankruptcy," admitted former Minister of Labor and Immigration Ahmed al-Borai. "The country's losses are growing day by day." His forecast is extremely pessimistic: "Either we unite and change the current situation, or we let Egypt perish." ⁸

WHERE ARE THE LOYAL ALLIES?

The International Monetary Fund was the first to sound the alarm. Concerned about the Egyptian government's poor post-revolutionary solvency, he offered $3 billion in aid just a few months after the "January 25 revolution." in the form of concessional lending to the new authorities to stabilize the crisis that was already emerging. However, finding the terms unfavorable, Cairo decided to reject the offer in the hope that its wealthy Gulf friends would step in and fill the financial void with the necessary amount of aid and investment.

Unfortunately, this did not happen. Despite loud promises, the monetary "aspic" monarchies are still in no hurry to help "fraternal" Egypt. Cairo has been negotiating for several months with the Kingdom of Saudi Arabia and the United Arab Emirates on the terms of allocating $5 billion to it. in the form of loans. Qatar only recently provided a grant of $500 million.⁹

Western assistance to the once - "main Arab ally" is also still very conditional. Back in May 2011, when delivering a keynote speech on the situation in the Middle East, US President Barack Obama promised Cairo to write off the debt in the amount of $1 billion. and loan guarantees for the same amount. The Group of Eight countries followed the American example, announcing through France at the Deauville summit in June 2011 their intention to provide Egypt with $20 billion in democratic development assistance. Despite such promising statements, only a small proportion of this aid reached Cairo. The West, apparently, has more urgent problems - how to save itself.

WILL HELP BECOME A PANACEA?

"The immediate priority should be getting an international bailout, or the Egyptian pound will continue to slide," said Neil Shearing, chief emerging markets economist at Capital Economics, a leading consulting firm. "People still hope that the pragmatists will prevail. But the risk that everything will end very carelessly remains. " ¹⁰

His opinion is supported by the analyst of the Middle East investment bank Beltone Financial Nada Farid: "If external assistance is not provided, the fall in the value of the Egyptian pound will become deeper: it will fall to the level of 6.8 per $1 in the 2012/2013 financial year." ¹¹

The arguments of experts, as well as the rapidly growing tension that threatens to get the internal economic situation out of control, convinced the Egyptian military leadership of the need to receive external financial and economic assistance. At the request of the Egyptian side, the delegation arrived in Cairo on January 16, 2012.

A delegation of the International Monetary Fund (IMF) led by Masoud Ahmed, Director of the Middle East and North Africa Department. "We have asked the IMF to provide us with $3.2 billion in aid, "¹² Minister of Planning and International Cooperation Fayza Aboul Naga said, adding that" the amount may be more than ¹³."

The two-day talks were cautiously described by the IMF as " productive." It was decided to continue working together on the program proposed by the Egyptian authorities in order to reach a mutually acceptable result. "The Fund will continue to work in both Cairo and Washington to reach an agreement on the bailout program and help the growing Egyptian budget deficit," said Massoud Ahmed. He stressed that " despite a solid foundation, the Egyptian economy faces a number of serious challenges, which must be countered with an economic program that can maintain macroeconomic stability and create conditions for a confident recovery."

Details of the proposed program, as well as the progress of negotiations, are not disclosed. Their common features were only slightly outlined by the head of the IMF delegation. He stated that the Fund will not impose any conditions on Cairo ¹⁴. Massoud Ahmed stressed, however, that the IMF would prefer to see an effective two-year program coordinated with all political forces in Egypt. At the same time, he pointed out that the most urgent problems facing the country are "energy subsidies and tax violations." In his opinion, the Egyptian authorities should also focus on "restoring confidence in the economy from foreign investors, creating jobs and protecting the poor." ¹⁵

Earlier, the IMF put forward a number of rather strict conditions to the Egyptian authorities, including the reduction of public spending related to payments for domestic consumption. Egypt, which exports natural gas and other energy sources, subsidizes domestic fuel prices for a total amount equivalent to 10% of its GDP. The majority of the country's population believes that cheaper fuel is their inalienable right. And the Egyptian military rightly fears that in the current difficult transition period, any progress on this issue will cause a wave of discontent. Meanwhile, economists have long warned that fuel subsidies are untenable.

Another significant result of the visit was the meeting of the IMF delegation with representatives of the Freedom and Justice Party (PSU), which won the parliamentary elections, and the political wing of the Muslim Brotherhood Association (ABM). Following the meeting, the PSS issued a statement that it supports the decision to receive financial assistance from the International Monetary Fund in the absence of any preconditions.

Meanwhile, many analysts and economists note the importance and even necessity of a positive outcome of Egypt's negotiations with one of the world's major financial institutions. But not so much because of the opportunity to get money, but because of the political and economic consequences resulting from such an agreement.

Samir Radwan, a former finance minister in post-revolutionary Egypt, believes that a deal is unlikely until the direction of the country's future development is clarified. At the same time, noting that the loan amount will not cover all Egyptian needs, he pointed out that reaching an agreement with the IMF will open the way for obtaining loans from other sources. "This fact should not be underestimated," he said, "as it will give the Egyptian economy international confirmation that the right policies will soon be implemented." ¹⁶

The idea expressed by the former minister was confirmed by the international credit rating agency Fitch Ratings. According to its analysts, the value of the IMF loan lies in the fact that its receipt will become a catalyst for additional capital inflows from outside. "If the loan is approved, its most positive result will be a signal to foreign investors that Egypt is pursuing a clear and sustainable fiscal and economic policy," ¹⁷ the agency stressed.

The United States hastened to say its word. Accepting as an inevitable reality the coming to power of Islamist forces in Egypt in the person of the Muslim Brotherhood, the White House declared its support for the course of the Egyptian leadership towards economic recovery of the country. According to Egyptian Industry Minister Mahmoud Issa, Washington has approved an emergency plan to strengthen the Egyptian economy for the next six months.¹⁸ The plan aims to increase trade between the two countries, double U.S. investment, support small and medium-sized businesses, and increase Egyptian exports under the Generalized System of Preference (GSP), an American initiative to promote economic growth in developing countries.

However, as is usually the case, the Fund's delegation did not have time to leave Cairo, as voices were already heard criticizing the plans for external borrowing. Thus, the Salafi party "An-Nur" ("Light"), which took the second place in the number of deputy mandates in the lower house of parliament, spoke out against "usurious transactions". "Before we borrow, we need to understand what our financial situation is," party spokesman Mohammed Noor said, referring to the fact that about 1 trillion Egyptian pounds ($165 billion) are allegedly held in private funds of state institutions, not counting money siphoned abroad by the former regime. "Why borrow if we have the money? he asks a question. "And if we don't have them, where did they go?" At the same time, he offers an alternative version of borrowing, revealing, among other things, the essence of the economic approaches of radical Islamists, who now occupy a not small niche in the new alignment of political forces in Egypt. "Let European banks lend in accordance with Sharia law," Noor said, "why don't we borrow from them?" ¹⁹

However, some local financiers believe that at the current rate of capital outflows, even the IMF's assistance and the supposed support of the Persian Gulf countries can only delay the prospect of a fall in the national currency, preventing its "hard landing". The currency exchange rate will directly affect other problems - higher import prices, inflation, and the state budget. The depreciation of the pound will lead to an increase in consumer prices. And given that Egypt has become the world's largest wheat importer (according to FAO, 10 million tons in July 2010-June 2011), ²⁰ rising imports will immediately worsen the situation of a quarter of the country's population living in poverty.

In addition, we should not forget that the economy, especially in the modern world, is closely linked to politics. Egyptians understand that support from the IMF and Western backers can only come with appropriate economic conditions, such as reduced government spending, and that aid from the rich Gulf monarchies can only be driven by political demands.

That is why, in an attempt to avoid imposing unfavorable conditions, the ruling Supreme Council of the Armed Forces (SCAF) again announced in early December 2011 that it was refusing external assistance from some countries. "Despite the fact that the most serious problem facing the Egyptian economy in the short term is the decline in foreign exchange reserves, we still do not want to use assistance from the Gulf states and other states," Major General Mahmoud Nasr, a member of the Armed Forces, argued ²¹.

NEW GOVERNMENT

Egypt's economic policies under Mubarak, though marred by corruption and favoritism, were on the rails of development. This is recognized by some of its most ardent opponents -the Muslim Brotherhood, which, after decades of political isolation and persecution, now has every chance to become a political force that determines the future of the country.

However, what does the growth of the authority and influence of Islamists promise to the Egyptian economy? This issue concerns businessmen, foreign investors, and ordinary people alike.

A cursory acquaintance with the election program of the ^22nd Freedom and Justice Party can mislead anyone, since it seems that it is aimed exclusively at developing business in line with the neoliberal economy. Moreover, this idea is diligently promoted by such successful representatives of the Muslim Brotherhood as business magnates Khairat Shater and Hassan Malen, who actively demonstrate support for the development of private entrepreneurship, the stock market and full integration into the world economy.

Nevertheless, the economic block of the political program of the "brothers" also provides for active internal socio-economic activity. In particular, they consider the creation of jobs with an emphasis on increasing investment in industrial production and, of course, agriculture, which plays an important role in employment, to be their main tasks. "We believe in a very, very big role for the private sector," said Khairat Shater, " and we intend to attract as much investment as possible in it."

The Egyptian Business Development Association, formed by Hassan Malen together with a number of large businessmen who are also supporters of ABM, is positioned as one of the first steps in this direction. Its main goal is to provide financing for projects, mainly in the textile and food industries. "You can't maintain high levels of investment inflows without raising production standards," Malen said. "One of the tasks of the association in this regard is to provide professionally trained personnel."

At the same time, some approaches to Egypt's traditional economic sectors voiced by Islamists are alarming

business. For example, the PSA called for more stringent regulation of the tourism sector, in particular the behavior of tourists and their "dress code" when visiting Egyptian resorts. "Beach tourism must take into account the values and norms of our society," said Mohamed Saad al-Katatni, the party's secretary-general, who was recently elected speaker of the Egyptian parliament. The party, according to him, intends to seek a ban on bikinis and alcohol, which caused a sharp reaction from Egyptian and foreign tour operators. "This idea of Islamists will negatively affect the tourism industry, especially if they decide to implement their ideas at the legislative level," they warn.

The foreign economic guidelines and preferences of Islamists are also not entirely clear. Such uncertainty makes many investors who have already invested in Egypt nervous and consider options for either withdrawing capital or, at worst, minimizing losses. Potential investment players are not in a hurry, considering the country of pyramids only as a secondary object for investment.

As you can see, the most likely representatives of the new authorities do not have a clear program of economic stabilization in Egypt. The approaches of the Muslim Brotherhood are quite contradictory, sometimes divergent, which, of course, does not inspire optimism.

Will they take advantage of the economic experience gained during the Mubarak period, or will antagonism prevail, and in the field of economics they will go their own way, so far unknown to anyone? The only thing that most economists agree on is that the regional influence and existing ties of the brotherhood, as well as the growing Salafists with the Gulf states and other Islamic states, will inevitably lead to serious changes in the structure of trade, investment, and the entire Egyptian economy as a whole.

* * *

All of this suggests that, at least in the case of Egypt, the" Arab Spring", which led to liberation from the" undemocratic shackles of the regime", does not contribute to the rapid prosperity of Arab countries and the growth of the well-being of their inhabitants. Rather, it has caused an economic malaise that pushes society to seek relief in the face of a new old authoritarian central government.

This, in turn, serves the interests of conservative political forces, including the Muslim Brotherhood, which is the main Islamist movement in Egypt, the most organized and aimed at gaining power at the expense of its secular rivals. However, their victory would by no means entail an automatic solution to the accumulated problems, the main one of which is to save the economy.

Such an outcome, of course, is not a foregone conclusion. Urgent financial injections from Western and Arab donors, distributed wisely and spent in conjunction with effective political and economic reforms, can help to move away from the abyss into which the Egyptian economy is sliding. At the very least, they will provide the next interim Egyptian government with the respite needed to implement some real program to get out of the crisis.

Otherwise, the current drift of the Egyptian economy ultimately threatens to justify the forecasts of Egyptian and foreign pessimists who predict that by overthrowing the "hated regime" of Hosni Mubarak, Egyptian revolutionaries may find themselves in a much more difficult, if not disastrous, situation.

¹ http://english.youm7.eom//News.asp?NewsID=348709

² http://www.bloomberg.com/news/2011 - 11 - 24/egypt-raises-key-rate-for-first-time-since-2008-to-stem-flight-from-pound.html

³ http://www.washingtonpost.com/business/economy/standard-and-poors-cuts-egypt-sovereign- rating-on-political-crisis-outlook-negative/2011/11/24/gIQAWOBTrN_story.html

⁴ http://www.bloomberg.com/news/2011 - 11 - 24...

⁵ http://www.washingtonpost.com/business/economy/standard-and-poors-cuts...

⁶ http://www.almasryalyoum.com/en/node/530486

⁷ International Monetary Fund. World Economic Outlook Database. April 2011. 5. Report for Selected Countries and Subjects. Egypt. Gross domestic product, current prices - http://www.imf.org/external/pubs/ft/weo/2011/01/weodata/weorept.aspx?pr.x-81&pr.y=11&s y=2010&ey=2016&scsm=1&ssd=1&sort=country&ds=.&br-1&c=469&s=NGDPD&grp=0& a-

^{Herman Ilan.} 8 Egypt's Dire Economy. 21.11.2011 - http://globalpublicsquare.blogs.cnn.com/2011/11/21/berman-egypts-direeconomy/

⁹ Ibidem.

¹⁰ http://www.reuters.com/article/2011/11/23/us-egypt-elections-economy-idUSTRE7AMlC320 111123

¹¹ Ibid.

¹² http://www.standupamericaus.org/economy/imf-egypt-bail-out-now/

¹³ http://www.nytimes.com/2012/01/17/world/middleeast/egypt-seeks-3 - 2-billion-loan-from-imf.html

¹⁴ http://articles.economictimes.india-times.com/2012 - 01 - 18/news/30639246_1_al-masry-al-youm-al-ahram-egyptian-economy

¹⁵ Ibid.

¹⁶ http://www.standupamericaus.org/economy/imf-egypt-bail-out-now/

¹⁷ http://english.ahram.org.eg/NewsContent/3/12/31974/Business/Economy/IMFs-Egypt-loan-n ot-sufficient-by-itself, -says-Fit.aspx

¹⁸ http://www.almasryalyoum.com/en/node/609646

¹⁹ http://www.almasryalyoum.com/en/node/609961

²⁰ FAO GIEW Country Brief. Egypt - http://www.fao.org/giews/countrybrief/country.jsp?code=EGY

²¹ http://www.almasryalyoum.com/en/node/530486

²² http://www.hurryh.com/Party_Program.aspx

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