I’ve been warning for months that Egypt, Syria, Tunisia and other Arab oil-importing countries face a total economic meltdown (see Food and failed Arab states, Feb 2, and The hunger to come in Egypt, May 10). Now the International Monetary Fund (IMF) has confirmed my warnings.
The leaders of the industrial nations waited until last weekend’s Group of Eight (G-8) summit to respond, and at the initiative of United States President Barack Obama proposed what sounds like a massive aid program but probably consists mainly of refurbishing old programs.
The egg has splattered, and all of Obumpty’s horses and men can’t mend it. Even the G-8’s announcement was fumbled; Canada’s Prime Minister Steven Harper refused to commit new money, a dissonant note that routine diplomatic preparation would have preempted.
The numbers thrown out by the IMF are stupefying. “In the current baseline scenario,” wrote the IMF on May 27, “the external financing needs of the region’s oil importers is projected to exceed $160 billion during 2011-13.” That’s almost three years’ worth of Egypt’s total annual imports as of 2010. As of 2010, the combined current account deficit (that is, external financing needs) of Egypt, Syria, Yemen, Morocco and Tunisia was about $15 billion a year.
What the IMF says, in effect, is that the oil-poor Arab economies – especially Egypt – are not only broke, but dysfunctional, incapable of earning more than a small fraction of their import bill. The disappearance of tourism is an important part of the problem, but shortages of fuel and other essentials have had cascading effects throughout these economies.
“In the next 18 months,” the IMF added, “a greater part of these financing needs will need to be met from the international community because of more cautious market sentiments during the uncertain transition.”
Translation: private investors aren’t stupid enough to throw money down a Middle Eastern rat-hole, and now that the revolutionary government has decided to make a horrible example of deposed president Hosni Mubarak, anyone who made any money under his regime is cutting and running. At its May 29 auction of treasury bills, Egypt paid about 12% for short-term money, to its own captive banking system. Its budget deficit in the next fiscal year, the government says, will exceed $30 billion.
And the IMF’s $160 billion number is only “external financing”; that is, maintaining imports into a busted economy. It doesn’t do a thing to repair busted economies that import half their caloric intake, as do the oil-poor Arab nations.
Egypt’s economy is in free fall. Its biggest foreign exchange earner was a tourist industry that won’t come back for a decade, if ever. The IMF’s $160 billion doesn’t take into account the costs of teaching two-fifths of the Egyptian population to read, or raising crop yields to more than a fifth of American levels, or training university graduates to do more than stamp identity cards and shuffle papers. As the international organization made clear, this is what Egypt and its neighbors require merely to pay for essential imports.
Of course, the IMF’s admission that Egypt, Tunisia, Syria and Yemen can’t meet the majority of their import bill without foreign aid does not increase the probability that these countries will obtain financing on that scale. On May 30, the IMF announced that it would lend $3 billion to Egypt – a tenth of its budget deficit – sometime in June. The G-8 offered the grandiose pledge of $20 billion in their own money along with $20 billion from the IMF, World Bank, and so forth, to support the “Arab Spring,” with the dissension of the Canadian prime minister. But it is unclear whether that represents new money, or a shuffling of existing aid commitments, or nothing whatever.
Whatever the Group of Eight actually had in mind, the proposed aid package for the misnomered Arab Spring has already become a punching bag for opposition budget-cutters. “Should we be borrowing money from China to turn around and give it to the Muslim Brotherhood?” Sarah Palin asked on May 27.
“Now, given that Egypt has a history of corruption when it comes to utilizing American aid, it is doubtful that the money will really help needy Egyptian people. Couple that with the fact that the Muslim Brotherhood is organized to have a real shot at taking control of Egypt’s government, and one has to ask why we would send money (that we don’t have) into unknown Egyptian hands,” the former Republican vice-presidential candidate added.
Whether any amount of foreign aid will stabilize Egypt’s economic position is questionable, even if the industrial nations and the Arab Gulf states opened their purses, which is doubtful.
From Arab-language online media, it appears that Egypt’s economic troubles have metastasized. Last month, rice disappeared from public storehouses amid press reports that official food distribution organizations were selling the grain by the container on the overseas market. Last week, diesel fuel was the scarce commodity, with 24-hour queues forming around gasoline stations. Foreign tankers were waiting at Port Said on the Suez Canal to pump diesel oil from storage facilities, as government officials sold the scarce commodity for cash.
This is the sort of general breakdown I observed in 1992 in Russia, following the collapse of the communist government. As an adviser to finance minister Yegor Gaidar, I heard stories of Russian officials selling unregistered trainloads of raw materials on foreign markets and depositing the proceeds in Swiss banking accounts. Anything of value that could find a buyer overseas was sold. I didn’t last long as an adviser; looting and pillaging wasn’t my area of competence. Russia, it should be recalled, is largely self-sufficient in food and is among the world’s largest oil producers, while Egypt imports half its food. Russia had enormous resources on which to draw. Egypt, Syria and Tunisia have nothing.
For 60 years, the Egyptian army and associated crony capitalists ran the economy as a private preserve. Although the army remains in nominal charge, the public humiliation of Mubarak serves notice on the previous masters of Egypt’s little universe that they are as vulnerable as their former patron. Everyone who can get out will and will take with them whatever they can.
Syria is also vulnerable to hunger, the UN’s Food and Agriculture Organization (FAO) warned May 23. “Continuing unrest in Syria will not only affect economic growth but could disrupt food distribution channels leading to severe localized shortages in main markets,” according to the FAO. ”Syria hosts one of the largest urban refugee populations in the world, including nearly one million Iraqis who have become more vulnerable because of rising food and fuel prices.”
Nearly 700,000 Libyan refugees have reached Libya and Egypt, fleeing their country’s civil war. At least 30,000 Tunisian refugees (and likely many more) have overwhelmed camps in Italy, and perhaps a tenth of that number have drowned in the attempt to reach Europe. A large but unknown number of Syrian refugees have fled to Lebanon and Turkey.
Robert Fisk wrote in the London Independent on May 30 that Turkey fears a mass influx of Syrian Kurdish refugees, so that “Turkish generals have thus prepared an operation that would send several battalions of Turkish troops into Syria itself to carve out a ‘safe area’ for Syrian refugees inside Assad’s caliphate.” The borders of the affected nations have begun to dissolve along with their economies. It will get worse fast.
Spengler is channeled by David P. Goldman. Comment on this article in Spengler’s Expat Bar forum.