Egypt’s economic siren

Feb 15 2013, 00:16 IST
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SummarySeven reasons why a more collaborative approach to solving Egypt’s problems is in the country’s collective interest.

Facing a turbulent political situation and recurrent street protests, Egypt’s political elite would be well advised to focus on the economic implications of the current turmoil, whether they are in government or in opposition. Doing so would lead them to recognise seven compelling reasons why a more collaborative approach to solving Egypt’s problems is in the country’s collective interest, as well as in their own individual interests.

First, if the social and political disorder persists, Egypt’s economy will end up with crippling inflation, severe balance-of-payments problems, and a budgetary crisis. The risk of a vicious, self-reinforcing downward spiral would rise sharply.

But, rather than collapse (in the style of Asian and Latin American economies during the debt crises of old), Egypt’s economy would risk a return to stifling controls and black markets. Economic efficiency, investment, and employment would take a significant hit, while slower growth would be accompanied by higher prices, including for basic food items.

Most segments of society would be harmed, with the poor, the unemployed, and the young suffering disproportionately. With that, the legitimate objectives of the revolution that began on January 25, 2011—inclusive growth, social justice, and human dignity—would prove even more elusive.

Second, no durable economic and financial solutions are possible without cooperatively addressing the country’s political quagmire. No matter how well intentioned and gifted, technocrats cannot ensure proper policies and deliver optimal outcomes. They need the backing of a unifying national vision, credible leadership, and citizens’ support.

Third, faced with chronic economic disorder and political instability, Egyptians increasingly lament the “hijacking” of the revolution, fuelling mistrust of the country’s governing elites. Empowered by their success in ousting former President Hosni Mubarak, and then sending the country’s armed forces back to the barracks, many are readily returning to the streets to hold leaders accountable.

Fourth, repeated street protests, combined with a weak police force, fuel small pockets of criminal activity. Opportunistic thugs foment fear and chaos—real and perceived—that far exceed their number and power, amplifying the country’s general sense of malaise.

Fifth, external financial assistance cannot postpone the day of reckoning forever. Emergency support from a few friendly governments has so far limited the erosion of Egypt’s foreign-currency reserves at a time of mediocre tourism earnings and growing imports of food and other basic necessities. Facing external payments obligations, and with the currency under pressure, the government will again seek a proposed $4.8 billion loan from the International Monetary Fund and co-financing

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