The ugly denouement of the so-called Egyptian Spring is visible in the collapse of Egypt’s stock exchange (down 11% in the first three days of this week) and the impending collapse of the Egyptian pound, as residents and foreigners flee to hard currency. A unique sort of brutality characterizes Egypt’s currency crisis: banks cannot meet the demand for currency because it is impossible transport bank notes. Mobs hijack the armored cars, as Al Ahram reported today:
“Demand on the dollar increased by 100 per cent since Saturday,” said Bilal Khalil, deputy head of the exchange division of the Federation of Egyptian Chambers of Commerce (FCC).
Khalil went on to say that many people prefer to convert pounds to dollars in times of crisis. “The exceptionally high demand on the American dollar resulted in a shortage of supply and a higher cost,” he said.
However, Khalil pointed out, the pound until Monday was still sold officially at LE5.98 in banks, but exceeded LE6 in exchange companies because they did not have enough cash to meet the soaring demand.
“Armoured money transfer vehicles were not safe anymore because law breakers take advantage and target the vehicles for a hijack,” Khalil said. “Transferring dollars between banks and exchange companies has become worrying more than ever.”
Now, that’s something new and nasty under the sun. I’ve observed first-hand the collapse of national currencies in Peru, Nicaragua, Russia and other blighted countries, but a breakdown of the rule of law to the point that banks cannot transport currency is something new.
The Chamber of Commerce’s Mr. Khalil also reports a black market erupting in the failing Egyptian currency:
Khalil believes that banks have the needed supply to stabilise the market but are afraid to transfer money to their branches and exchange companies at this time.
As is the case during all crises, Khalil added, the black market has flourished, where the dollar is sold at an even higher price. This leads to a further weakening of the local currency. “People just look to invest in the safe haven of the dollar without thinking of the repercussions on the pound,” he said.
It is entirely understandable that the Egyptian mob wants to help itself to the contents of armored cars, considering that the Egyptian press and blogs have reported for months that the country’s leaders are stealing rice, diesel oil, propane, and other commodities whose distribution is controlled by state companies. If everyone is stealing, why shouldn’t the man in the street get his share, too? Massive theft from state warehouses has been reported widely in Egyptian print and Internet media, but under the mainstream media’s affirmative action policy for failed states, not a word about this has made it into the conventional press.
Al Ahram adds that it will be hard for Egypt to obtain foreign aid under the circumstances:
Depleted reserves and the outflow of investments can only be compensated by international aid. Egypt turned down the offer of a $3.2 billion financing facility from the International Monetary Fund (IMF) this summer, in a move that the then Minister of Finance Samir Radwan attributed to Egypt’s ruling military’s reservations about increasing foreign debt.
Hazem El-Beblawi, minister of finance in the now resigned cabinet, said last week that the country is reconsidering taking the loan. But CI Capital’s Mansour ruled out this possibility: “The IMF loan to Egypt may be muted on the back of such unrest and the reshuffling of the government — which will further undermine investors’ confidence.”
Cairo has so far received in-principle offers of aid totalling well over $10 billion from Qatar, Saudi Arabia and the United Arab Emirates. However, it did not get even half this sum so far in what analysts attribute to reservations many Gulf countries hold against the fact that former ally Mubarak is facing trial.
The Obama administration, the mainstream media, and the liberal punditeska sit insensate before this hideous spectacle like children at a matinee of “Peter Pan,” hoping that Tinkerbell will come back to life. “If you believe in the Arab Spring, clap your hands!”