Egypt Chooses Brinksmanship
Last week, Egypt's central bank reported that total reserves had fallen to $15 billion, but - more importantly - liquid foreign exchange reserves had fallen to only $9 billion, equivalent to just two months' imports. Foreign exchange futures markets expect the Egyptian pound to lose half its value during the next year, and Egyptians have responded by hoarding diesel fuel, propane gas and other necessities.
With half of Egypt's population living on $2 a day or less, the expected devaluation would push a significant part of the population below minimum nutrition levels, and balloon the government's deficit as the cost of subsidizing imported necessities rose. Egypt imports half its caloric consumption.
The IMF loan was a stop gap to delay devaluation, but the Muslim Brotherhood's al-Shater made clear that Egypt's dominant political party would spike it. "It is not logical that I approve a loan that the transitional government would take for two or three months, then demand that I, as a permanent government, repay," Shater told Reuters." I have to agree to a loan, somebody else gets to spend it, then I have to pay it back? That is unjust."