SPENGLER Denial still is a river in
Egypt By Spengler
Denial, it turns out, really is a river in
Egypt. I refer not to the world's longest
waterway, but the world's largest outpouring of
pious expressions of confidence in Egypt by
American and European politicians. Infusions of
real cash, to be sure, could delay Egypt's
deterioration into a failed state, but not by
long, because the country requires more than US$20
billion a year simply to meet its basic needs, and
Western governments will not provide that much
money.
As Egypt's foreign exchange
reserves dipped below what the central bank called
a critical minimum and the country's currency
began sinking, the country cut imports of
essentials such as oil earlier this month. Reuters
reported January 8, "State-owned Egyptian General
Petroleum Corporation (EGPC) has only purchased 3
million barrels of crude oil for the first quarter
of this year, half of what it was seeking in a
tender, traders said. That
content tender was
already considered insufficient to supply Egypt's
refineries, even at reduced running rates. 'Of
course it's not enough, they need more - but no
money,' a trader, active in the East Mediterranean
oil market said."
Even before government
cut back oil imports by half, 15 Egyptian power
stations, representing more than a tenth of the
country's installed capacity, had stopped
generating power, the daily al-Ahram reported
December 28.
Egypt is running out of
everything, except well-wishers from the Western
foreign policy establishment, for which the Arab
Spring has been a humiliating proposition. After a
year of attempts to reinforce the Sunni opposition
in Syria, the West is left with an insurgency
dominated by radical jihadists, and an Assad
regime that continues to draw support from
minorities who fear the Sunnis even more than they
fear Assad. In Libya, the US helped overthrow
Colonel Muammar Gaddafi, and for its trouble got a
dead ambassador and roving bands of terrorists
equipped with the best of the Libyan arsenal.
No nation the size of Egypt has become
ungovernable except as a result of war during the
whole of the modern period. The deterioration of
the Arab Spring into societal breakdown
constitutes a reproach to the Western foreign
policy establishment, which could not envision
this outcome before, and refuses to consider its
consequences now.
The closer Egypt comes
to chaos, the shriller the expressions of
solidarity with Cairo from Western leaders. The
discovery of a 2010 video of President Mohammed
Morsi denouncing Jews as "descendants of apes and
pigs" came at an inopportune moment. The least of
the problem is that Morsi hates Jews; no-one
suspected him of any other sentiments. The trouble
is that the speech exposes Egypt's president as a
pre-modern creature of barbaric habits of thought
and Dark Age ignorance - hardly the man to execute
the most difficult operation that the leader of
any troubled economy has been asked to accomplish
in the recent record of economic disaster.
Western leaders have a story, though, and
they are sticking to it. European Union President
Herman Van Rompuy was in Cairo last week, along
with a delegation of American lawmakers led by
senators John McCain and Lindsey Graham. The
European leader promised $6.7 billion in loans and
investments, provided that Egypt sign the
agreement with the International Monetary Fund
that it has been unable to close for the past
year.
Even Bill Gates has gotten involved,
as part of a consortium of US investors buying a
$1 billion stake in the Egyptian cement and
construction firm Orascom. The whole of Egypt's
stock market is worth about as much as a middling
member of the S&P 500, on par with American
Express or 3M, which is about all one needs to
know about the valuation of an economy with 80
million citizens.
Money is what Egypt
needs, in mushrooming quantities. Egypt's import
bill has tripled since 2006, mainly because the
cost of its most important commodities - food and
energy - rose drastically. Its exports, meanwhile,
remain a fifth below the 2008 peak due to endemic
shortages of electricity and other essentials.
Tourism, the country's biggest source of foreign
exchange, has dropped by about half.
That
is why the Hosni Mubarak regime collapsed when it
did. Asia's fast-growing economies crowded Egypt
out of the world market for commodities, bidding
up the price of food and energy to the point that
the impoverished Egyptian economy could not afford
necessities. Western politicians don't seem to
grasp the magnitude of the problem. On January 14,
the European Union's Van Rompuy "stressed the need
for Egypt to achieve economic growth rates on par
with pre-revolutionary growth, as this would help
combat Egypt's high unemployment rates," al-Ahram
reported. The trouble is that the collapse of
economic growth provoked the revolution.
The country's trade deficit was
running at an annual rate of nearly $42 billion as
of November 2012, before the central bank allowed
the Egyptian pound to sink on foreign exchange
markets. That's 15% of Gross Domestic Product, a
startling amount (the government's budget deficit
also stands at around 15% of GDP. Against this $50
billion, Egypt can expect to earn perhaps $6
billion from tourists and $4 billion from the Suez
Canal, and take in perhaps $15 billion in
remittances from Egyptian workers overseas. That
is dicey, because devaluation prompts workers to
postpone remittances to a declining currency. In
the best case scenario Egypt will need nearly $20
billion for imports during 2013. The money isn't
there.
For most of the past year, Egypt
has been negotiating for a $4.8 billion loan from
the International Monetary Fund, which is supposed
to open the door for additional loans, for
example, some $6.7 billion in "loans and grants"
from the European Community - although a fraction
of that money, even if committed, will be
spendable during 2013. But the government of
Mohammed Morsi does not have the political
authority to demand painful sacrifices from a
population whose lower half suffers from extreme
privation.
As part of the loan package,
The International Monetary Fund wants Egypt to cut
its budget deficit to just 8.5% from about 15%,
almost entirely by reducing energy and food
subsidies. That is a reduction of government
spending by the equivalent of 6% of GDP in a
matter of months - the rough equivalent of a
trillion-dollar one-time cut in public spending in
the United States. That would impose extreme
hardships on the half of Egypt's population living
on less than $2 a day. Although the present
subsidy system is unwieldy and inefficient, the
likelihood that Morsi's Islamist government could
introduce effective subsidy reforms by next summer
is vanishingly small.
Instead of acceding
to IMF conditions, Morsi has adopted the usual
dodge of weak governments, that is, currency
devaluation and exchange controls. Egypt's pound
has lost about 10% of its value during the past
month, which will be reflected in higher prices
for essentials during the next several weeks.
Egyptian companies, meanwhile, can withdraw no
more than $30,000 per day.
Egypt's Pound Falls
by 10%
Source: Central Bank of Egypt
Egypt's cash position is even worse than
it appears. The $7 billion or so in the central
bank's liquid cash reserves does not take into
account the billions of dollars that Egyptian
importers owe to unpaid suppliers. Nor does it
take into account new obligations that Egypt has
had to assume to get cash up front. Qatar lent
Egypt $2.5 billion, all of which appears to have
been spent defending the Egyptian pound on the
foreign exchange market. It appears that Egypt
will have to pay off the Qatari loan by purchasing
natural gas from Qatar at inflated prices.
"The import price [for Qatari natural gas]
is expected to reach US$14 per 1 million thermal
units…The Egyptian government exports gas to
Jordan at $5.50 per one million units, while Qatar
exports it at more than $9," the Egypt Independent
reported December 17. It seems that Qatar is
getting its money back by charging Egypt double
for natural gas.
The discovery of Morsi's
apes-and-pigs comment might have provided a
pretext for America's Republican Party to wash
their hands of the Egyptian president and shift
the blame for the entire mess onto the Obama
administration. Such is the loyalty of the
Republican mainstream to the so-called freedom
agenda of the former Bush administration, though,
that Republican leaders have gone out of their way
to declare their solidarity with Cairo.
Senator McCain declared January 17:
Among our group here, Democrats and
Republicans, there is plenty that we disagree
about. But when it comes to Egypt, we largely
speak with one voice…We all believe in the
continued importance of the US-Egypt
relationship. We were all early supporters of
the peaceful aspirations of the Egyptian people
that inspired your revolution nearly two years
ago - for democracy, for economic opportunity,
for the protection of justice and human rights
under the rule of law.
And we have come
to Cairo with one major message: For us in the
United States, especially in the Congress, the
promise of Egyptian revolution is the
opportunity is has presented us to recast our
relationship with Egypt - to make it a truly
strategic partnership between our peoples, our
nations, and our elected governments, not one
that rests narrowly on one person or one party.
…In our meeting with President Morsi, we
voiced our strong disapproval of statements he
made a few years ago that have recently
surfaced. We had a constructive discussion on
this subject. We leave it to the President to
make any further comments on this matter that he
may wish.
How one conducts a
"constructive discussion" with someone who
believes that Jews are the descendants of apes and
pigs is a matter we will leave to Senator McCain's
memoirs, if ever they appear. President Morsi's
paranoid ravings are sadly typical of Egypt's
pre-modern backwardness - its 45% rate of
illiteracy, its 90% rate of female genital
mutilation, its 33% rate of consanguineal marriage
- that make it a money sink unable to adapt to the
shifts in the global market during the past
several years.
American policymakers of
both parties bring to mind the tolerance of the
enamored millionaire Joe E Brown at the end of
Some Like It Hot. After the manifestly
anti-American Muslim Brotherhood displaced the
"tech-savvy activists" of Tahrir square; Mohamed
Morsi dismissed Americans friends in the Egyptian
military in August; after Morsi allowed two days
of rampages against the American Embassy in Cairo
following the Benghazi incident; and after Morsi
himself was exposed as a paranoid clown in the
2010 video, we hear an echo of Joe E Brown's
response to the news that his intended bride is
really a man: "Nobody's perfect."
It is
hard to imagine what might change the narrative in
the Republican mainstream. After falling on its
collective sword for the Bush freedom agenda in
two lost presidential elections, the Republican
leadership cannot distance itself from its past
errors without taking early retirement.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
