Saturday, February 5, 2011

Egypt: The clock ticks on the street
and at the bank

Hosni Mubarak has announced that “I will die in Egypt” as his way of reinforcing his intention not to be pried out of the Egyptian presidency before September, pursuing a passive-aggressive course of action that could undo not just the progress of his country but the greater Middle East, too.

There’s a practical reason why playing for time won’t work. Strategy like that necessarily calls for a shorter time frame than seven months; Mubarak surely knows that a game of attrition is most effectively wielded on a short-term basis, while more tenable options are explored, pursued or discarded. Seven months? Not even Richard Nixon hid out in the White House that long during the height of Watergate.

The clock's ticking on the population’s patience. Already angry after 12 days of protest, his people are confronting the shortages — of food sources, of working ATMs, of the necessities of a functional infrastructure — that could move them toward more confrontational measures, and fast. This kind of deprivation also yields the sort of instability that, if left unchecked, could metastasize into a breeding ground for Islamist fundamentalism.

Patience is running out among world leaders, too. President Obama, Sarkozy in France and Cameron in the United Kingdom have weighed in against Mubarak’s regime. It can’t have escaped the attention of the would-be Pharaoh that certain right-wing elements in the United States (not in power, lucky for us) have already called for U.S. military intervention.

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But if nothing else, if Mubarak isn’t budged by moral suasion, if the cultural and geopolitical forces don’t move him, it’s a safe bet economic forces will. It’s not just the matter of $1.3 billion in military aid coming from the United States — an open flow of money that could slow down, if only slightly, the longer this goes on. That’s bad enough.

More concerning should be a story this week from BBC News. The story, borrowing from an analysis from Credit Agricole S.A., (the largest retail banking operation in France, a country with deep financial interests in Egypt), finds that the current unrest is costing Mubarak’s country at least $310 million a day.

The bank’s economists have revised downward their economic growth forecasts for Egypt this year from 5.3 percent to 3.7 percent.

According to the report: "Prolonged political uncertainty and perceived violence could have a destructive impact on tourism earnings this year. Tourism accounted for 6 percent of GDP in 2010 and... receipts could easily retract to pre-2004 levels of less than $5.5 billion.”

Egypt's new vice president Omar Suleiman said Thursday on state television that the unrest had cost his country $1 billion in tourism over the first nine days.

The damage may well be more than locally collateral. “Local as well as international investors will demand an early exit as political instability and lack of clarity looms," the CA report said. "Those that have not opted for capital outflow strategies over the past few years will do it now.”

Translation: Look for foreign investors to start repatriating billions of dollars worth of their home currencies, or putting their money into safer places elsewhere abroad.

Credit Agricole also estimates Egypt's budget deficit this year might hit 12.3 percent, up from an earlier estimate of 8.2 percent.

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Another story, by the Saudi Gazette puts things in even starker terms, calling on facts from Egypt’s recent history:

“A depreciating currency would lead to higher import costs, especially food imports such as wheat. Global food commodity prices are on the rise and that is likely to translate into additional burdens for the local economy. Inflation will continue to be the ‘untameable beast’ that the government failed to stabilize despite concerted efforts. Food inflation of around 17 percent — which accounts for 44 percent of the inflation basket — is a major issue for the government,” the CA report said, mentioning the food riots that broke out in Cairo in January 1977 (when people protested against an end of state subsidies on staple foods) and April 2008 (when high food prices and depressed wages sparked another uprising).

The Egyptian army had to step in on both occasions, putting down the riots with predictably bloody results.

The CA report’s dire outlook gets even more gravity when you look at the shares of the Credit Agricole Egypt mutual fund, which have taken a major hit from almost the moment things in Cairo began going south at the end of last month.

The bottom line? That's right. The bottom line may be the storied tipping point, the thing that makes the pivotal difference in the current unrest. After all the other arguments have been brought to bear, what could topple the Mubarak regime may come down to money. The likelihood increases that — sooner rather than later — Mubarak will exit from the presidency of Egypt because, when all’s said and done, Egypt literally can’t afford to let him stay.

Image credits: Cairo unrest: via The Huffington Post. Credit Agricole logo and stock chart: ©˙ 2011 Credit Agricole.

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