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Egypt's Economic Woes

Gold Demand Surges

Written by Briton Ryle
Posted February 25, 2013

Did you feel that trembling rolling through the land of Egypt? That’s Ramses II rolling in his grave.

3,000 years ago, Egypt was the predominant world power, equivalent to what the United States is today. It had the most powerful military, dominated nearby vassal states, and had enough economic power to undertake massive construction projects like the pyramids.

It’s a good thing Ramses the Great is not around to see where his nation is today. Everything is in short supply, especially what an economy needs the most: investment. Since the revolution of 2011, Egypt’s currency—the Egyptian pound—has already dropped 14% in value, causing everything else to rise in price.

Fuel to power industry is scarce and becoming increasingly more expensive. Fertilizer to grow crops to feed the population is equally growing in price and shrinking in supply, straining family budgets. Subsidies that lubricate the gears of the Egyptian economy are drying up. Jobs are on the decline, while weapons smuggling is on the rise.

It is a classic case of an economy grinding to a halt, where one locked gear stops another gear from turning, which in turn locks another until the entire machine shuts down.

And on the horizon, even darker clouds are amassing. With its reserves shrinking and its deficit expanding, Egypt needs money now.

As reported by Yalibnan.com, Amr Moussa, leader of the Conference Party, is trying desperately to organize a conference of international delegates from “the Gulf Cooperation Council, the Association of Southeast Asian Nations, the World Bank, the International Monetary Fund, the European Union, the Americas and Africa” to consider options for assisting the struggling nation, which needs as much as “$100 billion to recover, $12 of which are needed immediately.”

Many are blaming the power vacuum left behind after the government’s 2011 overthrow. The constitution is still centered on Islamic fundamentalism, which many fear puts severe restrictions on individual freedoms and, by extension, limits their ability to compete economically.

The road to democratic reforms has not been leading in the direction that the population had hoped when it rose up against its government two years ago. The “Egyptian spring” may have encountered a snap freeze that may have killed democracy’s sprout before it ever took root.

Funding and outside aid for the teetering economy is available, but it is being blocked by a lack of cooperation from the Egyptian government.

Reuters reports that an IMF deal had been in the works to “unlock up to $12 billion in funding from a range of sources including the World Bank, the European Union, the United States and Gulf Arab countries”. On certain conditions, of course: “The IMF demanded in December that Egypt amend its economic adjustment program to qualify for the loan.”

Fine. Just make some necessary changes and get on with it. Right? As always, what seems easy to those on the outside is not so simple to those on the inside.

The IMF wants Egypt to bring its spending under control by implementing austerity measures and reducing subsidies. Every other country in the world seems to be going through it. Why not Egypt too? Because there is an election in just two months’ time, that’s why.

As Essam Haddad, the president's national security adviser, affirms, "It is very well known by the IMF that nobody would do such an action just before the elections.”

And the division among the political parties does not make the situation any easier to resolve. Liberal parties are still trying to pressure the government to implement the reforms the IMF is demanding, while the leftist Popular Current party doesn’t want Egypt to get involved in the IMF program at all.

The Muslim Brotherhood’s leading business advisor, Hassan Malek, “said in an interview the economy was going through a sticky patch because the transition to democracy launched by the 2011 revolt that toppled former President Hosni Mubarak was not yet complete and institutions were not working fully,” Reuters summed up.

Even so, Haddad remains adamant that the Muslim reforms desired by the Freedom and Justice Party—the Muslim Brotherhood’s political branch through which the religious order exerts its will in politics—will be of benefit. “Our message is very clear,” he stresses. “These reforms are essential for the economic recovery. There is no other choice."

In support, Malek reassures the outside world that such transition will improve Egypt’s plight, promising, “The Egyptian economy is not going to collapse.”

But what does the everyday Egyptian populace think? Abu Dhabi, UAE newspaper The National informs that “gold demand surged during the fourth quarter of last year as fears mounted over the depreciation of the Egyptian pound. Demand for the yellow metal - overwhelmingly jewellery - leapt 54 per cent to 14.4 tonnes during the quarter, according to data released yesterday by the World Gold Council.”

But this is no mere jewellery buying by consumers. These gold purchases betray wide-spread concerns by the population at large.

How such a concerned populace will vote come election day in 2 months’ time will be very interesting to watch. Yet what will prove even more interesting is the government’s reaction to it.

Joseph Cafariello

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