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Thursday, December 13, 2012

That sound you just heard was the Egyptian economy going down the toilet

The International Monetary Fund has 'delayed' a $4.8 billion loan to Egypt due to the refusal of Islamist President Mohammed Morsy to raise taxes (Hat Tip: MFS - The Other News). The 'delay' has put Egypt's economy of the edge of an abyss.
Egypt’s Prime Minister Hesham Qandil defended President Mohammed Mursi’s recent decision not to increase taxes and called for a “social dialogue” on the tax measures.

The IMF board was scheduled to meet to discuss approving the loan on Dec. 19 after a preliminary agreement was reached during a visit by an IMF team to Cairo last month. The IMF had said Egypt must keep policy steady for the loan to go through.

"In light of the unfolding developments on the ground, the Egyptian authorities have asked to postpone their request for a Stand-By Arrangement with the IMF," a Fund spokeswoman told Reuters in a statement.

"The Fund remains in close contact with the authorities, and stands ready to continue supporting Egypt during the ongoing transition and to consult with the authorities on the resumption of discussions regarding the Stand-By Arrangement," the spokeswoman said.

"He said the delay would give officials time to explain an economic reform package after media criticism prompted the government to postpone measures that were part of the program.

In a televised speech on Tuesday, Prime Minister Qandil, who criticized the media’s “erroneous” reporting over Mursi’s tax scrap said a “social dialogue” meeting will take place next week to explain the government’s tax project.
Read the whole thing

Last week, Spengler's David Goldman wrote:
Morsi demanded dictatorial powers last week in large part because the exigencies of Egypt’s economic position–a $36 billion trade deficit, equivalent to an astonishing 16% of GDP, and a budget deficit of 11% of GDP–required cuts in subsidies for necessities, which take up nearly half of the country’s budget. A $4.8 billion loan from the International Monetary Fund was supposed to give Egypt breathing room until the Morsi government could persuade private investors t meet the gap, presuming that Morsi could get the gigantic deficits under control. It appears that Morsi’s attempt to gain the political leverage needed to address the deficits has blown up in his face, and prompted capital flight. The country’s stock market has fallen by 25% since mid-September. That is a less than perfect indicator, given that the market capitalization of the whole Egyptian stock exchange index is less than that of Starbucks.
If Morsi succeeds in crushing the opposition, Egypt is likely to become a sort of North Korea on the Nile in which a totalitarian one-party state rations a dwindling supply of food. A more likely outcome is a prolonged period of instability with spreading hunger.
What should the United States do?
  • First, we should recognize that there are some disasters beyond our capacity to fix. Egypt is the victim of sixty years of mismanagement and corruption.
  • Second, we should not throw good money after bad. American taxpayers are under no obligation to pour money down the drain.
  • Third, we should actively support the secular opposition led by Mohamed al-Baradei. I do not believe that al-Baradei could govern Egypt more effectively than Morsi, but anything–including prolonged chaos–is better than the consolidation of a totalitarian state under the Muslim Brotherhood.
And finally, we should severely reduce military aid to a country whose political leadership cannot be expected to act responsibility in a crisis.
But instead, the Obama administration has decided to give Morsi 20 more F-16's. Am I missing something behind this stroke of brilliance? Maybe parts of them are edible? What could go wrong?

Read the whole thing.

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