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THE GLOBAL FINANCIAL MELTDOWN
EGYPT vs IMF: TIME TO DEFAULT?
Eric Walberg

Global Research, July 7, 2011
http://www.globalresearch.ca/index.php?context=va&aid=25538

The financial flip-flop of Egypt’s revolutionary government, first requesting and then declining a $3 billion dollar IMF loan, highlights Egypt’s hard choices at this point in the revolution, but is a good sign.


It is no secret that Egypt has put all its faith in the US and Western international institutions since the days of Egyptian president Anwar Sadat, contracting a huge foreign debt, a process that was increasingly corrupt, despite being careful watched over by those very agencies. This debt is financed by foreign banks, and must be repaid in dollars -- with interest. If much of the money they create and then “lend” is siphoned off into Swiss bank accounts, that is Egypt’s problem. No one is trying to charge the people who gave Mubarak or his henchmen their money and then let them re-deposit it with them, but it takes two to tango.

Whether or not a fraction of it actually helps the Ahmeds in the meantime, it is the Egyptian people who are held responsible for it all and must comply with IMF “adjustment programmes”, involving privatisation, deregulation, regressive taxation, an end to subsidies to the poor, and much more unpleasant “tough love”.

Egypt’s revolution momentarily shattered the complacency of this devilish scenario. The explosion under the weight of the grinding poverty the system produced caught the Western bankers and political leaders by surprise and they hurried to embrace the revolution and co-opt it when they realised it was inevitable. This culminated in the IMF’s offer of the loan to cover the yawning gap in Egypt’s first post-revolution budget, which will double the lowest salaries, improve social services and introduce a progressive income tax.

This unusual gesture of generosity by the IMF (a low interest rate and supposedly no strings attached) was really intended to keep Egypt from straying from the orthodox monetary fold, as other countries have done in the past in similar situations. It was enthusiastically supported by Egypt’s elite, largely trained at US universities in the arcana of monetary theory. “Otherwise, Egypt was about to be considered in default,” Hani Genena, senior economist at Pharos Holding for Investments told Al-Ahram Weekly. This is precisely what countries such as Russia, Argentina and Ecuador have done in the past.

The Higher Council of the Armed Forces, Egypt’s de facto ruler, was not impressed with assurances that the loans were “without conditions”, and General Sameh Sadeq told the government to cancel the loan, with its “five conditions that totally went against the principles of national sovereignty” which would “burden future generations”. Finance Minister Samir Radwan complied and hastily negotiated funds from Qatar and Saudi Arabia (countries with their own agendas for Egypt’s revolution) to plug the remaining hole. The spurned lover, the IMF, and its sidekick the World Bank, were not pleased. The latter said it would have to “review” its financial plans for Egypt.

As news of the loan tiff was breaking, US Senators John McCain, Joe Lieberman and John Kerry visited Cairo to offer their gift to the revolution: a bill in Congress to create “economic assistance funds” for Egypt and Tunisia. Recall McCain’s presidential campaign slogan to “Bomb, bomb, bomb Iran!”, and his and Lieberman’s militant support of Israel. If anything, their visit merely confirmed to Egypt’s military leaders the need to keep the IMF and its henchmen at bay.

Another visitor to Cairo last week was Mahatir Mohamed, who turned Malaysia into an economic powerhouse after extricating it from its colonial past. When his “tiger” economy was subverted by speculators in 1997, he stopped the run on the Malaysian currency and stabilised the economy without going to the IMF cap in hand, and Malaysia survived the crisis much better than the other “Asian tigers” who bowed to IMF pressure. “Malaysians refused the IMF and World Bank’s assistance because we wanted our economic decisions to be independent,” he told reports in Cairo this week proudly -- music to Field Marshall Mohamed Tantawi’s ears.

In fact, many observers are convinced the army’s decision was in response to the same popular anger and national pride that allowed Mahatir to successfully defy the bankers in his day. “I felt a surge of pride when I heard the loan was rejected,” University of Cairo employee Mohamed Shaban told the Weekly. Egyptians intuitively understand Mayer Rothschild’s principle: “Give me control of a nation’s currency and I care not who makes her laws.” Egypt’s military leaders understand this too.

The process of petitioning the grudging financial centres of Zurich and London to recover at best a tiny fraction of the stolen billions that were stashed abroad and thus are responsible for an outsize part of Egypt’s foreign debt will take decades and yield precious little besides huge legal costs, as the experience of the Philippines and Indonesia shows.

Egypt indeed could consider defaulting on what is called in financial jargon an “odious debt”, referring to the national debt incurred by a regime for purposes that do not serve the best interests of the nation. The US did this to tear up Iraq’s debt in 2003. Ecuador did it in 2009. The latter (unlike the US in Iraq) even in compliance with international law. Greek citizens have already formed an Audit Committee to establish which parts of the national debt are “odious” or otherwise illegitimate.

But such a radical step would bring the collective wrath of the powerful world financial elite down on Egypt and is not an easy option. There is no longer a Soviet Union to turn to, as there was in the time of Nasser, when he dared defy the empire.

But neither is there any need to leave Egypt’s budgetary financing up to an elite of world bankers. Once a government realises that money is just a convention, something that it can use responsibly to grease the wheels of the economy, to generate employment and incomes, using the nation’s wealth for the people, it can responsibly create what money it needs, keeping a careful eye on what will increase production and wealth without putting too much pressure on prices. Taxation returns this money that the government in effect “loaned” to itself interest-free.

Michael Hudson, president of the Institute for the Study of Long Term Economic Trends and adviser to the Russian, Japanese and Icelandic governments, told the Weekly Egypt has a “much broader choice” than Western governments in pursuing an independent financial and economic reform, as it still has nationally-owned commercial banks. It could set up a Recovery Fund for the Revolution without any need to borrow from anyone, using Egypt’s millions of unemployed -- a force that can move mountains -- as collateral, to create jobs which will automatically repay the money the government creates in new income and more tax revenue.

The plan to bring Toshka back to life by redistributing land to peasants and providing them with start-up capital is a perfect example of what must be done. There is no reason to “borrow” this money, especially from other countries, and worse yet to pay them interest. After all, investment in the country’s future is a risk that should be equally share by both the giver and taker of loans, in compliance with sharia law.


Hudson’s associates at the Center for Full Employment and Price Stability, the Levy Economics Institute, and the Center for Full Employment and Equity are now preparing a report for the Asian Development Bank on alternative monetary and fiscal policies to promote full employment and price stability without relying on IMF/WB funding.

Eric Walberg writes for Al-Ahram Weekly http://weekly.ahram.org.eg/ You can reach him athttp://ericwalberg.com/ His Postmodern Imperialism: Geopolitics and the Great Games is available athttp://claritypress.com/Walberg.html


EGYPT's RISING FOOD PRICES: THE ECONOMIC CRISIS IS DRIVING  POLITICAL PROTESTS SPARKED IN PART BY US FINANCIAL SPECULATION
Danny Schechter
http://www.globalresearch.ca/index.php?context=va&aid=23019

This is an upstairs/downstairs story that takes us from the peak of a Western mountaintop for the wealthy to spreading mass despair in the valleys of the Third World poor.


It is about how the solutions for the world financial crisis that the Ceos and Big pols are massaging in a posh conference center in snowy Davos Switzerland have turned into a global economic catastrophe in the streets of Cairo, the current ground zero of a certain to spread wave of international unrest.


Yes, the tens of thousands in the streets demanding the ouster of the cruel Mubarek regime are there now pressing for their right to make a political choice but they are being driven by an economic disaster that has sent unemployment skyrocketing and food prices climbing.


People are out in the streets not just to meet but by their need to eat.


As Nouriel Roubini who was among the first to predict the financial crisis while others were pooh-poohing him as “Dr Doom” says don’t just look at the crowds in Cairo but what is motivating them now, after years of silence and repression.

He says that the dramatic rise in energy and food prices has become a major global threat and a leading factor that has gone largely unreported in the coverage of events in Egypt.

"What has happened in Tunisia, is happening right now in Egypt, but also riots in Morocco, Algeria and Pakistan, are related not only to high unemployment rates and to income and wealth inequality, but also to this very sharp rise in food and commodity prices," Roubini said.

Prices in Egypt are up 17% because of a worldwide surge in commodity prices that has many factors but speculation on Wall Street and big banks is a key one.

As IPS reported, “Wall Street investment firms and banks, along with their kin in London and Europe, were responsible for the technology dot-com bubble, the stock market bubble, and the recent U.S. and UK housing bubbles. They extracted enormous profits and their bonuses before the inevitable collapse of each.


Now they've turned to basic commodities. The result? At a time when there has been no significant change in the global food supply or in food demand, the average cost of buying food shot up 32 percent from June to December 2010, according to the U.N. Food and Agriculture Organisation (FAO). Nothing but price speculation can explain wheat prices jumping 70 percent from June to December last year when global wheat stocks were stable, experts say.”

Here’s a key fact buried in a CNN Money report—the kind intended for investors, not the public at large: “About 40% of Egypt's citizens live off less than $2 a day, so any price increase hurts.”


Brilliant!


Think about that: what would you be doing if you were living of $2 a day. You won’t be drinking mochachinos at Starbucks, that’s for sure.


Trust me, the people on top are following this unrest closely on Wall Street as anxiety grows:


Reports the Washington Post:


U.S. stocks declined sharply Friday as violent clashes in Egypt injected a jolt of anxiety into global financial markets.


Egypt is central to U.S. interests in the Middle East as a moderate state and a key player in both counterterrorism operations and regional peace negotiations, said Helima L. Croft, a geopolitical analyst at Barclays Capital.


If street protests were to end President Hosni Mubarak's nearly 30-year hold on power, "I think there would be a fear that you could see radicalism sweeping across the Middle East," Croft said, adding that the fear might be unfounded.


Beyond its political significance, Egypt controls the Suez Canal, an important shipping lane.”


Suddenly, there are worries about Egypt being able to pay off its debt, it suddenly was pronounced riskier than Iraq, according to Asia Times:


“The cost of protecting Egyptian debt against default for five years with the contracts jumped 69 basis points, or 0.69 percentage points, this week to 375 today, compared with 328 for Iraq, according to prices from CMA, a data provider in London. Just last week, Iraqi swaps cost 19 basis points more than Egypt’s, and in June, an average 240 basis points more, as Iraq recovered from the U.S.-led invasion in 2003.


The unrest, inspired by the revolt that toppled Tunisia’s leader, “does raise political risks,” said Eric Fine, a portfolio manager in New York who helps Van Eck Associates Corp. oversee $3 billion in emerging-market assets. “If this is a revolution, the price of risk for Egypt could go much higher, and if it’s a failed one” the cost will drop to 300 basis points and probably 250, Fine said in a phone interview.”


While most of the increases in food prices are due to droughts and floods, US policy contributed to it mightily, argues Mike “Mish” Shedlock on his Global economic blog, revealing a reality the media has missed:


“Bernanke's "Quantitative Easing" policies combined with rampant credit growth in China and India has led to increased speculation in commodities. That speculation has forced up food prices.


Please note that speculation in commodities is not a cause of anything. Rather commodity speculation is a result of piss poor monetary policies not only the Fed, but central bankers worldwide.”


Michael Fitzsimmons says that US energy policy is also contributing to the problems in Egypt, but agrees that monetary policy is a prime culprit. He writes, “ to sum things up: Ben Bernanke's implementation of "QE2" has directly led to food inflation across the world. In many developing and poor countries (i.e. Egypt and elsewhere) food makes up a much larger percentage of an individual's income and is felt much more severely than in the U.S.


Why have most media outlets ignored this? The financiers schmoozing at the World Economic Forum in Davos know all about it and are worried as well as Bloomberg News reported.


“This protest won’t end in North Africa; it will spread in many countries because of high unemployment and increasing food prices,” Hamza Alkholi, chairman and chief executive of Saudi Alkholi Group, a holding company investing in industrials and real estate, said in an interview in Davos, Switzerland.


In an age of globalization, a hike in global prices will spread unrest globally. Egypt had its own “bread riot” in  l977 when prices went up suddenly on the orders of the World Bank so it is no stranger to the need to fight back.


The question is why aren’t Americans up in arms too as inflation at the pump and the grocery store drives princes higher here. Part of the reason is that they don’t know that the US has worse economic inequality according to a scientific measure: The Gini Coefficent


Washington’s Blog reports “According to the CIA World Fact Book, the U.S. is ranked as the 42nd most unequal country in the world, with a Gini Coefficient of 45. Egypt in contrast is ranked as the 90th most unequal country, with a Gini Coefficient of around 34.4.”


He asks, “so why are Egyptians rioting, while the Americans are complacent?”


According to the report, Building a Better America, Dan Ariely of Duke University and Michael I. Norton of Harvard Business School demonstrate Americans consistently underestimate the amount of inequality in our nation.


And why is that? Could our media have anything to do with it, a media consumed with when it bleeds it leads, but where context and background are missing?


Danny Schechter blogs for Mediachannel.org (Newsdissector.com/blog) His new film Plunder views the financial crisis as a crime story.  
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THE GLOBAL FINANCIAL MELTDOWN - by moeenyaseen - 08-27-2006, 09:59 AM

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