11-04-2016, 10:15 PM
*** 5-Nov-16 World View -- Egypt fears more social unrest after sharp devaluation of currency
This morning's key headlines from GenerationalDynamics.com
****
**** Egypt, in economic crisis, sharply devalues currency in order to get an IMF loan
****
![[Image: g161104b.jpg]](http://www.GenerationalDynamics.com/ww2010/g161104b.jpg)
People jostle with each other to get to the fuel nozzle on Friday in the hours before a scheduled 47% increase in the price of petrol (al-Ahram)
In a step unprecedented for Egypt, in order to meet conditions for a
$16 billion loan from the International Monetary Fund (IMF), the
Central Bank of Egypt announced on Thursday that its pound currency
would be allowed to float in value against other currencies.
Previously, the government pegged the currency at a fixed rate of 8.8
pounds per US dollar, but international foreign exchange (forex)
traders were increasingly unwilling to pay a dollar for just 8.8
Egyptian pounds.
The "grey market" price was already at around 15-16 pounds per US
dollar, so it's not surprising that when the currency was allowed to
float, it quickly plummeted in a single day from 8.8 pounds per US
dollar to a value of about 14.65 pounds per dollar. This meant that
prices of imported goods will cost about 45% more than before the
currency was floated.
The government also announced a 30-47% increase in subsidized fuel
prices, as part of a plan to slash its total subsidy bill by 14%. The
announcement was made about two hours before the price increase would
take effect, resulting in long lines of cars hoping to fill up during
those two hours.
Egypt's economy had been increasingly in crisis at the fixed exchange
rate. US dollars were becoming increasingly scarce, and all imports
had be purchased in Egyptian pounds, which exporters increasingly
refused to accept. The result was that basic commodities like sugar
and flour were almost completely unavailable. Egyptian citizens were
becoming increasingly vocal in blaming the government for the
shortages.
However, the shortages have now been replaced by prices that are
40-60% higher than before, so social unrest is only likely to
increase. Al-Ahram (Cairo) and Reuters and NPR and Guardian (London, 25-Oct)
****
**** Egypt's government says that 'the luxury of delay is not available'
****
Ever since the Arab Spring and the fall of Egypt's dictator
Hosni Mubarak in 2011, Egypt's economy has been plagued by a
series of disasters. There have been riots and jihadist terrorist
attacks that have sharply cut Egypt's income from tourism.
When Mohamed Morsi became the first democratically elected leader of
Egypt in its history, there was hope that things would settle down.
However, Morsi turned out to be one of the stupidest leaders in
Egypt's history, and proceeded to destroy one of Egypt's institutions
after another in order to gain more power for himself and his Muslim
Brotherhood government. This led to the army coup on July 3, 2013,
led by then General Abdel al-Fattah al-Sisi, who is now president of
Egypt.
All this chaos once again resulted in harm to the tourist industry,
but there was a more significant result. Qatar was a big supporter of
the Muslim Brotherhood, and provided a great deal of aid to Egypt when
Morsi was in power. That aid ended with the coup, and the slack was
taken up by Saudi Arabia, United Arab Emirates (UAE) and Kuwait.
However, the collapse in the price of oil since then has meant
reduced aid from these countries to Egypt.
During the last five years, Egypt's economy has continued to worsen,
and the Egyptian currency was under attack by forex investors. Even
so, Egypt's central bank continued to peg the pound at a fixed rate
versus the US dollar. Finally, in July of this year, Tarek Amer, the
governor of the Central Bank of Egypt, announced that Egypt's
longstanding policy of defending the Egyptian pound against
devaluation had been a "grave error," because it hadn't helped the
economy, but instead had caused numerous problems, including shortages
of dollars.
This announcement exacerbated the crisis, since it became clear that
some kind of currency devaluation was coming, especially when the
International Monetary Fund (IMF) appeared to demand it if the IMF
were going to approve a loan to Egypt.
On Friday, Egypt's prime minster Sherif Ismail held a press conference
and said:
> [indent]<QUOTE>"Yesterday was an important day in the history of the
> Egyptian economy, with the moves in foreign currency and petroleum
> prices. ... We’re taking important decisions, decisions that will
> revive the economy and take it forward. ...
>
> The luxury of delay is not available. It may have been available
> in previous decades but today we cannot afford such
> painkillers."<END QUOTE>[/indent]
There has been massive social unrest in Egypt in the last five years,
since the beginning of the Arab Spring. The government has good
reason to fear that there will be substantially more social unrest, as
the currency devaluation causes higher prices to bite further into
people's incomes. Al Ahram (Cairo) and Bloomberg and Tahrir Institute for Middle East Policy (Cairo, 3-Oct)
Related Articles
KEYS: Generational Dynamics, Egypt, International Monetary Fund, IMF,
Hosni Mubarak, Mohammed Morsi, Muslim Brotherhood,
Abdel al-Fattah al-Sisi, Qatar, Saudi Arabia,
Tarek Amer, Central Bank of Egypt, Sherif Ismail
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe
This morning's key headlines from GenerationalDynamics.com
- Egypt, in economic crisis, sharply devalues currency in order to get an IMF loan
- Egypt's government says that 'the luxury of delay is not available'
****
**** Egypt, in economic crisis, sharply devalues currency in order to get an IMF loan
****
People jostle with each other to get to the fuel nozzle on Friday in the hours before a scheduled 47% increase in the price of petrol (al-Ahram)
In a step unprecedented for Egypt, in order to meet conditions for a
$16 billion loan from the International Monetary Fund (IMF), the
Central Bank of Egypt announced on Thursday that its pound currency
would be allowed to float in value against other currencies.
Previously, the government pegged the currency at a fixed rate of 8.8
pounds per US dollar, but international foreign exchange (forex)
traders were increasingly unwilling to pay a dollar for just 8.8
Egyptian pounds.
The "grey market" price was already at around 15-16 pounds per US
dollar, so it's not surprising that when the currency was allowed to
float, it quickly plummeted in a single day from 8.8 pounds per US
dollar to a value of about 14.65 pounds per dollar. This meant that
prices of imported goods will cost about 45% more than before the
currency was floated.
The government also announced a 30-47% increase in subsidized fuel
prices, as part of a plan to slash its total subsidy bill by 14%. The
announcement was made about two hours before the price increase would
take effect, resulting in long lines of cars hoping to fill up during
those two hours.
Egypt's economy had been increasingly in crisis at the fixed exchange
rate. US dollars were becoming increasingly scarce, and all imports
had be purchased in Egyptian pounds, which exporters increasingly
refused to accept. The result was that basic commodities like sugar
and flour were almost completely unavailable. Egyptian citizens were
becoming increasingly vocal in blaming the government for the
shortages.
However, the shortages have now been replaced by prices that are
40-60% higher than before, so social unrest is only likely to
increase. Al-Ahram (Cairo) and Reuters and NPR and Guardian (London, 25-Oct)
****
**** Egypt's government says that 'the luxury of delay is not available'
****
Ever since the Arab Spring and the fall of Egypt's dictator
Hosni Mubarak in 2011, Egypt's economy has been plagued by a
series of disasters. There have been riots and jihadist terrorist
attacks that have sharply cut Egypt's income from tourism.
When Mohamed Morsi became the first democratically elected leader of
Egypt in its history, there was hope that things would settle down.
However, Morsi turned out to be one of the stupidest leaders in
Egypt's history, and proceeded to destroy one of Egypt's institutions
after another in order to gain more power for himself and his Muslim
Brotherhood government. This led to the army coup on July 3, 2013,
led by then General Abdel al-Fattah al-Sisi, who is now president of
Egypt.
All this chaos once again resulted in harm to the tourist industry,
but there was a more significant result. Qatar was a big supporter of
the Muslim Brotherhood, and provided a great deal of aid to Egypt when
Morsi was in power. That aid ended with the coup, and the slack was
taken up by Saudi Arabia, United Arab Emirates (UAE) and Kuwait.
However, the collapse in the price of oil since then has meant
reduced aid from these countries to Egypt.
During the last five years, Egypt's economy has continued to worsen,
and the Egyptian currency was under attack by forex investors. Even
so, Egypt's central bank continued to peg the pound at a fixed rate
versus the US dollar. Finally, in July of this year, Tarek Amer, the
governor of the Central Bank of Egypt, announced that Egypt's
longstanding policy of defending the Egyptian pound against
devaluation had been a "grave error," because it hadn't helped the
economy, but instead had caused numerous problems, including shortages
of dollars.
This announcement exacerbated the crisis, since it became clear that
some kind of currency devaluation was coming, especially when the
International Monetary Fund (IMF) appeared to demand it if the IMF
were going to approve a loan to Egypt.
On Friday, Egypt's prime minster Sherif Ismail held a press conference
and said:
> [indent]<QUOTE>"Yesterday was an important day in the history of the
> Egyptian economy, with the moves in foreign currency and petroleum
> prices. ... We’re taking important decisions, decisions that will
> revive the economy and take it forward. ...
>
> The luxury of delay is not available. It may have been available
> in previous decades but today we cannot afford such
> painkillers."<END QUOTE>[/indent]
There has been massive social unrest in Egypt in the last five years,
since the beginning of the Arab Spring. The government has good
reason to fear that there will be substantially more social unrest, as
the currency devaluation causes higher prices to bite further into
people's incomes. Al Ahram (Cairo) and Bloomberg and Tahrir Institute for Middle East Policy (Cairo, 3-Oct)
Related Articles
- Generational Dynamics analysis of the crisis in Egypt (28-Jul-2013)
- Downed EgyptAir flight an economic disaster for Egypt (21-May-2016)
- Egypt-Saudi deal for Red Sea bridge triggers massive protests in Cairo (16-Apr-2016)
- Ousting Morsi may have saved Egypt from austerity, for a while (27-Jul-2013)
KEYS: Generational Dynamics, Egypt, International Monetary Fund, IMF,
Hosni Mubarak, Mohammed Morsi, Muslim Brotherhood,
Abdel al-Fattah al-Sisi, Qatar, Saudi Arabia,
Tarek Amer, Central Bank of Egypt, Sherif Ismail
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe
