Egypt Meltdown Update
Egypt's economy appears to be running on fumes. Public health clinics are out of vaccines for infants, importers are running out of stockpiles of basic food items, and the government is $3 billion in the hole to oil suppliers in the midst of a paralyzing fuel shortage. And it doesn't look like anyone is riding to the rescue of Muslim Brotherhood president Mohamed Morsi. The latest news is that negotiations over an IMF loan have been "delayed," yet again. That's good news, because the U.S. would be on the hook for a big part of that loan. The Republicans in the House of Representatives have shown some spine in refusing White House requests for emergency cash for Egypt, and should be encouraged.
With cash on hand down to about $6 billion, or less than two months' imports, Egypt's central bank won't give scarce dollars to food importers. Egypt is short $1 billion a month (by its own estimate) or $2 billion a month (by some private estimates).
I reported in Asia Times Sept. 29:
According to the country's importers association, the reluctance of banks to provide trade financing to Egyptian firms has cut imports in half since the January 2011 revolution, and now threatens essential food supplies. The government claims to have six months' of wheat stockpiled and recently bought additional supplies, but other staples, including beans, sugar and cooking oil. Ahmed Shiha, the head of the Cairo Chamber Commerce importers' group, warned earlier this month that Egypt has been living off inventories of key food commodities, according to the Egyptian news site el-balad.com. After the 2011 revolution, importers stocked up on food out of fear of devaluation. Now they are having trouble obtaining letters of credit to replace their diminishing supplies. Especially vulnerable is Egypt's provision of beans, the biggest staple after bread. High dollar prices and dwindling cash reverses could lead to a 40% reduction in the supply of imported foods, Shiha warned. Egypt imports half its total food consumption.
A $4.8 billion International Monetary Fund loan was supposed to provide the foundation for international support for the near-bankrupt Egyptian economy, but that won't happen any time soon. Business Monitor International reported today:
Negotiations between Egypt and the IMF for a US$4.8bn loan have been delayed to give the government more time to formulate its economic reform programme. A team from the IMF was originally scheduled to arrive in Egypt at end-September to discuss the terms of the loan. The country is in immediate need of funds to support state coffers hit by the economic turmoil since the 2011 uprising that toppled former president Hosni Mubarak. The government aims to complete the economic programme before the loan talks so as to show that it is serious, reports Al-Borsa, citing Egyptian Finance Minister Mumtaz al-Said.
The Obama administration asked Congress for an emergency $450 million cash infusion for Egypt last week, but congressional Republicans won't permit it. The New York Times reported Sept. 28:
An influential Republican lawmaker, Representative Kay Granger of Texas, immediately announced that she would use her position as chairwoman of the House appropriations subcommittee overseeing foreign aid to block the distribution of the money. She said the American relationship with Egypt “has never been under more scrutiny” than it is in the wake of the election of President Mohamed Morsi, a former leader of the Muslim Brotherhood.
Morsi does not seem to have done himself much good in the Congress by allowing Islamist mobs to vandalize the American embassy in Cairo.
Turkey announced a $2 billion package for Egypt last month, but none of that money will be spent on urgent imports. From my Sept. 29 report in Asia Times Online,
Egypt announced that Turkey had promised $2 billion in aid, but Turkish press accounts doubt that Egypt will spend any of that money in the near future; $1 billion is reserved to finance the operations of Turkish firms in Egypt, which does nothing for Egypt's urgent import requirements. The other $1 billion, the Turkish newspaper Star wrote on September 15, is just an advance on the prospective $4.8 billion loan from the International Monetary Fund (IMF). Turkey still owes the IMF $5 billion from its borrowing after the 2008 crisis, so it will expect repayment out of the IMF money - if the IMF loan ever comes through. In the meantime, the $1 billion will sit in the central banks' display window and won't be spent.
And the Saudis, who were supposed to bail Egypt out, just offered a $235 million loan, a tip to add insult to injury. The Saudi monarchy hates the Muslim Brotherhood, the only entity that might overthrow it.
Returning to my Sept. 14 question -- is Egypt ungovernable? -- the answer is looking more affirmative every day.