Egypt: Economic crisis nearing tipping point
From the International Report delivered to the CPGB-ML’s central committee on 4 February
Relations between Egypt’s ruling military government and the US remain fraught, as the government has barred six US ‘human rights’ workers from leaving the country. To avoid arrest, at least three of them have taken refuge in Cairo’s US embassy, while the US threatens to withhold its $1.3bn annual military aid to Egypt unless the government stands down on its objection to so-called ‘pro-democracy’ groups from abroad operating in the country.
In the meantime, the severe economic difficulties that lay behind the Arab spring uprising have continued to worsen. Unemployment stands at at least 15 percent, (but much higher among the young), half as high again as it was when the uprising started. Tourism has declined 30 percent and construction work has come to a standstill.
To avoid a devaluation of the Egyptian pound that would send food prices spiralling upwards, the Egyptian government has been spending $2bn a month in a losing battle to prop it up. According to the New York Times, foreign currency reserves have, as a result, fallen to about $10bn, from about $36bn before the revolt. Clearly this is unsustainable. (See ‘Economic crisis adds dangers on Egypt’s new political path’ by David D Kirkpatrick and Mayy El Sheikh, 24 January 2012)
Nor is the government able to raise money from Egypt’s banks to finance its expenditure, even at an interest rate of 16 percent, because the banks are fearful that the state will be unable to repay them. Another drain on its resources are energy subsidies, which cost it $15bn a year (one-fifth of all government spending), but the government cannot afford to reduce the subsidy as to do so would infuriate the Egyptian population still further.
In the circumstances, the Egyptian government has had to go back cap in hand to the IMF to ask for a $3.2bn loan – after having refused an offer of aid of $3bn only last June because it would have excessively compromised Egyptian sovereignty. In the meantime, the Muslim Brotherhood, whose Freedom and Justice Party controls over half the seats in Egypt’s new parliament, has pronounced itself in favour of IMF borrowing, free markets and abolishing subsidies.
With regard to relations with the IMF, the New York Times pointed out that the Muslim Brotherhood’s position was a “stunning reversal after eight decades of denouncing western colonialism and Arab dependency”. The crisis is making many such organisations reveal their true colours, which can only advance the understanding of the masses.