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    Middle East
     Sep 29, 2012

Palestinians ditched; Egypt next?
By Spengler

"No one cares about the Palestinians," I wrote in this space two years ago [1], and since then the world has stopped funding them. As a result, the Palestine Authority is collapsing, comments Khalid Elgindy, a former PA adviser, on the website of the Council on Foreign Relations, about "the wave of Palestinian protests that swept through the Israeli-occupied West Bank this month [and] ... virtually paralyzed life in Palestinian cities, with scenes reminiscent of the first intifada".

The PA can't pay salaries because international donors, including


the Gulf States, haven't sent promised aid:
A rapid infusion of cash from the international community and Israel may buy the PA some time, but it cannot kick the can down the road forever - especially if a recently released World Bank report is right that a more severe fiscal crisis will take root if donor countries fail to act swiftly.

Even if the PA manages to hobble along for a few more months or years, a weak and divided Palestinian leadership with questionable domestic legitimacy will be in no position to negotiate a comprehensive agreement with Israel or make that agreement stick. This week's mass arrests of Hamas activists, carried out in the wake of the protests, speaks to the PA leadership's deep sense of insecurity. [2]
International donors are weary of Mahmoud Abbas' sorry little West Bank kleptocracy, while the squeeze on the state budgets of all the industrial nations makes it harder to shake loose money for an unpopular destination. The World Bank warned on September 19 of a "deepening Palestinian fiscal crisis" and issued an "urgent appeal" to donors. [3]

Diplomats and bureaucrats at international organizations will issue press releases, wring their hands, make promises and then break them. No-one is going to write a check to the Palestine Authority.

The question is: when will the world also grow weary of Egypt? With liquid cash reserves down to a month or two worth of imports in July, Egypt began bouncing checks to oil suppliers in August, and has stopped importing some urgently needed items. The latest shortage to plague the Egyptian economy is infant vaccines. (See North Korea on the Nile, Asia Times Online, August 28, 2012.) The news site AllAfrica.com reports:
Cairo - Tens of thousands of children are at risk because of a vaccine shortage in Egypt, pediatricians warn."The longer the government fails to immunize these children, the more vulnerable to disease they are," Eman Masoud, head of the Pediatrics Section at Abul Riesh University Hospital in Cairo, told IRIN. She said a delay of more than one or two months in obtaining vital vaccines like MMR, which protects against measles, mumps and rubella, can put children's lives in peril.

Over the last two weeks, parents have lined up at many of the government's 5,000 health offices which vaccinate children for free, only to be told: "The vaccines are not available." (Shots are, however, available for the equivalent of US$50 at private clinics.) [4]
It's hard to get accurate readings on Egypt's economic free-fall, but according to the country's importers association, the reluctance of banks to provide trade financing to Egyptian firms has cut imports in half since the January 2011 revolution, and now threatens essential food supplies. The government claims to have six months' of wheat stockpiled and recently bought additional supplies, but other staples, including beans, sugar and cooking oil.

Ahmed Shiha, the head of the Cairo Chamber Commerce importers' group, warned earlier this month that Egypt has been living off inventories of key food commodities, according to the Egyptian news site el-balad.com. [5]

After the 2011 revolution, importers stocked up on food out of fear of devaluation. Now they are having trouble obtaining letters of credit to replace their diminishing supplies. Especially vulnerable is Egypt's provision of beans, the biggest staple after bread. High dollar prices and dwindling cash reverses could lead to a 40% reduction in the supply of imported foods, Shiha warned. Egypt imports half its total food consumption.

By its own estimate, Egypt needs $12 billion to get through the next year. Some private estimates quoted by the Egypt Independent put the gap at twice that much. [6] Every few days, the Egyptian government hails another multi-billion-dollar aid package from a foreign donor, but none of these packages appears to entail much ready cash. Qatar deposited $500 million in Egypt's central bank in August, and promised another $1.5 billion, which is yet to appear.

Egypt announced that Turkey had promised $2 billion in aid, but Turkish press accounts doubt that Egypt will spend any of that money in the near future; $1 billion is reserved to finance the operations of Turkish firms in Egypt, which does nothing for Egypt's urgent import requirements. The other $1 billion, the Turkish newspaper Star wrote on September 15, is just an advance on the prospective $4.8 billion loan from the International Monetary Fund (IMF). [7]

Turkey still owes the IMF $5 billion from its borrowing after the 2008 crisis, so it will expect repayment out of the IMF money - if the IMF loan ever comes through. In the meantime, the $1 billion will sit in the central banks' display window and won't be spent.

The Barack Obama administration offered the Egyptians $1 billion (half of which was debt forgiveness rather than ready cash), but shelved the proposal after the attacks on America's Cairo embassy until after the November elections. Saudi Arabia seems to have no intention of funding the Muslim Brotherhood, the monarchy's most dangerous internal opponent.

For the moment, it really does seem like Egypt is living on diminishing stockpiles, as the Chamber of Commerce's Shiha warned. Egyptians will have enough bread to go around, but not much to put on it, and not enough gasoline to distribute it.

Some problems simply can't be fixed. In the past, I have argued that the Palestine problem is hopeless but not serious. Roughly one in four Palestinian men between the ages of 20 and 40 is paid to carry a gun, and a putative nation whose economy is based on the imminent prospect of violence does not have first claim on scarce international resources.

Meanwhile the living standard of Arabs in the so-called Occupied West Bank is double that of pre-crisis Egypt; compared with Egypt or Syria, it is an oasis of peace and plenty.

After years of intoning that the Palestine issue was the crux of the world's security problems, the world has left the keys in the wreck and walked away from it. And the Oslo process is ending with a whimper rather than a bang.

Egypt is a different matter. The notion that the world will find $1 billion a month for Egypt - let alone $2 billion - seems whimsical. The catastrophic decline of a nation of 80 million people is something the world has not seen in some time, and policymakers would be wise to take precautionary measures.

1. Obama in more trouble than Netanyahu over Iran, March 16, 2012.
2. Why Palestinians Protest: The PA Leadership Is Not the Only Problem, Foreign Affairs, September 20, 2012.
3. World Bank Warns Of Deepening Palestinian Fiscal Crisis, World Bank, September 19, 2012.
4. Egypt: Vaccine Shortage Hits Egypt's Children, AllAfrica.com, September 14, 2012.
5. See el-balad.com.
6. Hunger economics: Do rising food prices mean trouble ahead?, Egypt Independent, September 20, 2012.
7. Mısır'ın istikrarına bizden 2 milyar $, Star, September 15, 2012.

Spengler is channeled by David P Goldman. His book How Civilizations Die (and why Islam is Dying, Too) was published by Regnery Press in September 2011. A volume of his essays on culture, religion and economics, It's Not the End of the World - It's Just the End of You, also appeared last fall, from Van Praag Press.

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