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Analyst: Egypt Falling Apart, Could Go Broke Soon

The Arab Spring has turned Egypt into an economic basket case, says a noted economist, while a top Egyptian politician says Cairo is broke.
By David Lev
First Publish: 10/4/2011, 10:32 PM

The “Arab Spring” may yet yield a winter of discontent, says Mohammed el-Baradei, the former head of the International Atomic Energy Agency (IAEA) and current candidate for the presidency of Egypt.

Speaking Monday, El-Baradei said that the country could go bankrupt by next March, unless something was done to stop the flow of foreign currency out of the country – or to find new sources of “hard” currency.

According to Egyptian treasury figures, foreign currency holdings – crucial for Egypt, which imports much of its food and other basic supplies – stood at around $25 billion at the end of August. With nearly a billion dollars a month going for imports, and debts to foreign creditors that are coming due in the next few months, El-Baradei said that there was a strong possibility of bankruptcy.

“Egypt is still an amateur country when it comes to industry,” ElBaradei told workers at an election rally, “but with the current economic deterioration that resulted from to the lack of security and as we run out of reserves with little foreign investment, the country will go bankrupt in six months.”

Egyptian banks lost much of the country's foreign currency deposits as a result of the uprising against Hosni Mubarak, as investors unsure of what the revolution would bring sought safer havens for their cash. In addition, the country's tourism industry, the largest earner of foreign currency, has still not recovered from the loss of tourism during the revolution.

So far, Cairo has been unsuccessful in wooing investors back, although, El-Baradei said, they really ought to give the country another chance, as “Egypt’s potential has no limits in agriculture, tourism, industry and services.”

Although Western media has concentrated on the protests that brought Mubarak down and presents a picture of a more moderate and more free Egypt, the truth is that at least 10,000 civilians are behind bars, due to the implementation of several emergency laws. Among the targets of mass arrests have been bloggers, political activists, and participants in protests against the government, which are becoming more frequent and violent.

The riot last month at the Israeli Embassy in Cairo was actually only one of several mass riots in Cairo that day, with public employees, doctors, transport workers, and teachers conducting angry demonstrations demanding better salaries. Unemployment is higher now than it was under Mubarak, critics of the government say; according to Al-Jazeera. the unemployment rate among  young Egyptians is 20%, while the unemployment rate for women with university degrees stands at 55%.

In an article titled “Endgame for Egypt,” economist David P. Goldman, who specializes in analyzing the economies of the Arab world, says that the “Arab Spring is really “a convulsion of a dying society. Egypt imports half its caloric consumption, 45% of its people are illiterate, its university graduates are unemployable, its $10 billion a year tourism industry is shuttered for the duration, and its foreign exchange reserves are gradually disappearing.

“Western economists can concoct all the economic recovery plans in the world,” continues Goldman, “but a country that can’t teach half its people to read, and can’t produce employable university graduates, and can’t feed itself, is going to go down the drain. Nasser, Sadat and Mubarak kept Egypt under control by keeping most of its people poor, ignorant, and on the farm, and by warehousing its youth in state-run diploma mills. After sixty years of such abuse, Egypt simply can’t get there from here.

“The result, I predict, will be a humanitarian catastrophe that makes Somalia look like a picnic.”