mohamed morsi

Nothing New on the Egyptian Front?

Four months after the military takeover in Egypt, the country’s economy is still a train wreck. With growth well below government forecasts, the budget deficit in 2013/2014 may get to 15 percent of GDP, bringing Egypt into truly dangerous territory, unless the inflow of aid from the Gulf countries continues indefinitely. And instead of reforms, there are discussions of a new stimulus plan, worth $3.6 billion.

Nor are there many reasons for optimism in the political arena. Mohamed Morsi appeared in court on Monday, charged with inciting violence and murder. If convicted, he can face the death penalty. Unsurprisingly, the trial, alongside with the ongoing crackdown on the Muslim Brotherhood, has fostered further violent protests in Cairo.

However, if instead of following the news, one listened to U.S. officials, one could not avoid the impression that everything is going swimmingly. Today’s Washington Post has a brilliant editorial describing the state of denial in the administration:

Not surprisingly, a Freedom House report released Monday concludes that “there has been virtually no substantive progress toward democracy … since the July 3 coup,” despite the military regime’s supposed “road map.” But that’s not how Secretary of State John F. Kerry sees it. “The road map is being carried out to the best of our perception,” he pronounced during a quick trip to Cairo on Sunday. A liberal constitution and elections? “All of that is, in fact, moving down the road map in the direction that everybody has been hoping for.”

Egypt’s Fall Down the Dark Hole

The ongoing events in Egypt are an unspeakable human tragedy. With yesterday’s death toll of 525 and rising violence in major Egyptian cities, the chances of a return towards anything resembling normalcy are very slim.

Egypt’s Vanishing Currency Black Markets

Despite escalating tensions between Egypt’s new military-backed government and supporters of ousted president Mohammed Morsi, there is at least one positive development coming out of the Land of the Nile. Yes, at long last, some semblance of stability appears to be returning to Egypt’s economy.

After the ouster of President Hosni Mubarak in 2011, the Egyptian economy took a turn for the worse. In particular, the Egyptian pound began to slide shortly after Morsi and his Muslim Brotherhood-backed government took power, sparking the development of a black market for foreign currency. The accompanying chart tells the tale: the official and black-market EGP/USD exchange rates began to diverge sharply in late 2012. In recent weeks, however, they have converged.

Recent currency auctions by the central bank, coupled with improved expectations about the country’s economic prospects, have begun to buoy the struggling pound. Indeed, the black-market exchange rate is now 7.13 EGP/USD, very close to the official rate of 7.00 EGP/USD. So, with Morsi, the black market appeared, and with the military’s re-entry, the black market has all but vanished.

The Egyptian stock market is echoing the confident sentiments displayed by the foreign exchange markets (see the accompanying chart). But, it remains to be seen if this newfound confidence in the Egyptian economy will be sustained.

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