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Is Egypt Closing Up Shop?

With the military and Muslim Brotherhood hashing out new power sharing agreements, it is now time for Egyptian leaders to address its beleaguered economy. The Financial Times reports that Egypt’s military rulers, after initially rejecting international help last summer, have asked the IMF for $3.2 billion in support for its failing economy.

Since the “revolution” began, Egyptian Central Bank reserves have dropped almost in half — from $36 billion to $18.3 billion. Egypt’s two main economic pillars, tourists and foreign investors, have been frightened away. A number of analysts speculate that the loan Cairo requested is not enough and that much more will soon be needed.

The economic situation in Egypt is dire, and there is little sign that the emerging government will be able to do much about it in the short term. Egypt is a rent-seeker’s paradise and the structures of subsidies, licensing, corruption and favor-swapping are too deeply embedded in social expectations and business life to be cleaned up anytime soon.

Luring investors and tourists back is the first step in any kind of economic program, but that will be hard. The danger is of a vicious circle: political and social instability keeps the tourists and investors away. The absence of tourists and investors leads to more instability.  Increased instability further reduces the flows of tourism and investment.

Repeat until society explodes.

As the new Islamist-dominated government comes to power, it is likely to have much tougher issues on its plate than the implemention of Sharia law.

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  • Jeremy, Alabama


    I’ve been following Spengler’s articles in this, as I’m sure you have. His additional point is that Egypt is now in the grip of a frenzied capital flight – and not just capital, but anything of value, e.g. trucks of food, shiploads of oil, relief supplies of all kinds.

    This will end tragically for twenty million people whose survival (in total poverty) depended on the relative stability imposed by the Mubarak regime. I would not attempt to defend Mubarak, but merely note that the road from Bad to Good must usually pass through Worse.

  • Kris

    “As the new Islamist-dominated government comes to power, it is likely to have much tougher issues on its plate than the implemention of Sharia law.”

    Sometimes I despair of you, Mead. Do you not understand that the implemention of Sharia law will solve all of Egypt’s problems? Islam is the solution! If the problem persists? More Islam! The problems still won’t go away? Ah, then they are being caused by the likes of you and your … Zionist friends. And something tells me I can find a solution in the Koran for a problem like Via Meadia.


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