Egypt’s Economic Siren

NEWPORT BEACH – Facing a turbulent political situation and recurrent street protests, Egypt’s political elite would be well advised to focus on the economic implications of the current turmoil, whether they are in government or in opposition. Doing so would lead them to recognize seven compelling reasons why a more collaborative approach to solving Egypt’s problems is in the country’s collective interest, as well as in their own individual interests.

First, if the social and political disorder persists, Egypt’s economy will end up with crippling inflation, severe balance-of-payments problems, and a budgetary crisis. The risk of a vicious, self-reinforcing downward spiral would rise sharply.

But, rather than collapse (in the style of Asian and Latin American economies during the debt crises of old), Egypt’s economy would risk a return to stifling controls and black markets. Economic efficiency, investment, and employment would take a significant hit, while slower growth would be accompanied by higher prices, including for basic food items.

Most segments of society would be harmed, with the poor, the unemployed, and the young suffering disproportionately. With that, the legitimate objectives of the revolution that began on January 25, 2011 – inclusive growth, social justice, and human dignity – would prove even more elusive.