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The Elephant in the Room: Egypt’s Looming Economic Reforms

April 5, 2011

Drastically diminished tourism revenues because of the unrest is a serious blow to the economy--but most protesters are concerned about bigger issues.

If I were an Egyptian political leader, I would not want to win the forthcoming election.

The way I figure it, the first new administration is not going to be able to please anybody, because most Egyptians want economic reforms and they want them now. It’s important to remember that the April 6th Youth Movement, which became part of the core of the 25 January uprisings, began in solidarity with striking workers in 2008, and when the movement in Tahrir seemed to be faltering in the face of the regime’s recalcitrance, it got a shot in the arm from labor movements  in Ismailia and elsewhere.

Ironically, but not surprisingly, the revolution itself has caused considerable, and ongoing, economic damage to Egypt.

Lost tourism revenues alone cost Egypt about US$850 million in the span of about two weeks, about half the $1.7 billion the government estimates the uprisings cost the country. And while some tourism has returned, the overall effects are pretty dire. The industry amounts to 5 to 6 per cent of Egypt’s gross domestic product.

The revolution has also raised Egypt’s debt by an estimated $3 billion. The Egyptian Central Auditing Organization (CAO) reported that the country’s internal and external debts have reached EGP 1080 billion (USD $181 billion), constituting 89.5 percent of Egypt’s total 2010 GDP.

Egypt owes $35 billion to the US, $160 million to the British government, and large amounts to many other countries and institutions. The global economic slowdown means that Egypt’s exports will bring in less, yet efforts to borrow to cover deficits will be more expensive because Standard and Poor, Moody and Fitch all lowered Egypt’s credit ratings during the uprising.

Meanwhile, Egyptians continues to demand a minimum wage, greater collective bargaining rights and other changes to enable them to meet their economic needs.

Neoliberal economists only answer to this is to recommend that Egyptians stop protesting, go back to work, and try to convince foreign financials that everything is rosy.

Consider Monal Abdel-Baki, assistant professor of economics at the American University in Cairo, in an interview with Al-Masry Al-Youm English:

“The motto of the revolution was ‘equality, democracy and freedom,’ but of course economists keep complaining about this and are trying to tell people to carry on with work and to stop demonstrating,” she said.  “This is harming the economy, yet the demonstrators say this is the process of democracy.”

Sigh. “Democracy” in this context is not about the economic growth, Dr. Abdel-Baki. It’s about the distribution of wealth. Unlike undergraduate students at AUC’ whose families benefited from the Mubarak regimes policies to the extent that they could afford $10,000+ tuitions, many of the protesters were part of Egypt’s vast body of educated unemployed or underemployed (not that there weren’t plenty of AUC students–and professors–out there protesting).

Increasing tourism and exports is important to the people who rose up but only if there are serious efforts to change the structure of the economy. Even the most committed neoliberal economist has to admit that crony capitalism wasn’t working. For example, privatization of state-owned companies under the Mubarak regime was a farce. In spite of setting dramatic goals to persuade World Bank and others to loan them more money, the regime basically just sold off less than 20 percent of shares of public companies, giving them some cash but not really converting from “socialism” to “liberalism” as was claimed.

That’s why it was nice to read an optimistic economic account offering steps forward. In an interview Feb. 19, Ahmed Galal, director of the Economic Research Forum and World Bank and Egyptian Center for Economic Studies alumnus, offered a four-part a blueprint for Egypt’s economic reform:

  1. Egypt needs to continue its economic reform agenda to maximize the benefits from private initiatives. Capitalism can be bad. You want to encourage creative capitalism, not crony capitalism, or the kind based on ripping off somebody else.
  2. Then comes the distribution of, as well as generation of, wealth. We should make sure to reward effort and that no one is left behind. The government’s responsibility is to equalize opportunities for people of different socio-economic classes. We have to make sure that kids who can’t afford to go to school go and are able to get health services, etc.
  3. The third part is making sure those who can’t participate in the economic process–or example, the disabled–have a safety net.
  4. Finally, accountability and political liberalization is fundamental to achieving the objectives of growth. Without accountability, policies will be made to benefit the few. At the end of the day we would get neither growth nor distribution.

The real question will be whether the new government–any new government–can adequately tackle this daunting project, and how patient the populace will be with their progress. Based on what has occurred in other countries, Parts 2, 3 and 4 of the above plan may be held hostage until Part 1 is successful. Only “success” often turns out to be a moving target, and soon the people may be back in Tahrir Square, asking where their share of the nation’s wealth is.

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