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RANSACKING THE TREASURY February 7, 2011

Posted by wmmbb in Middle East, North Africa.
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Sometimes when the cameras are pointing in one direction, the real news is happening elsewhere.

With that precedent in Honduras, it is hard to imagine that the purpose of the public officials of the United States in particular, but not excluding the European Union, is not to undermine the purpose of the Egyptian Revolution. The question remains deserving the serious attention it cannot be given: What sort of democracy supports a dictatorship? And in particular the vicious police state practiced in Egypt for thirty years. Oh, and there are of course those scary Muslims – a rather long story which the West should have gotten over and at least come to some understanding.

Still, when the focus is on public officials of the good and great democracies, the action focuses on that curious mix of celebrity and scapegoating.

So what else might be going on? Michel Chossudovsky suggests:

Mubarak’s decision not to resign was taken in close consultation with Washington. The US administration including US intelligence had carefully identified the possible scenarios. If Washington had instructed Mubarak to step down, he would have obeyed forthright.

His decision not to resign indelibly serves US interests. It creates a situation of social chaos and political inertia, which in turn generates a vacuum in decision making at the government level.

The continued social crisis has also resulted in a massive outflow of money capital. More concretely, what this signifies is that Egypt’s official foreign exchange reserves are being confiscated by major financial institutions.

The ransacking of the country’s money wealth is an integral part of the macroeconomic agenda. The newly formed government on instructions from Washington has not taken concrete steps to curtail the massive outward flow of money capital. A prolonged social crisis means that large amounts of money will be appropriated.

According to official sources, Egypt’s Central Bank had (prior to the protest movement) 36 billion dollars in foreign exchange reserves as well as an additional $21 billion of deposits with international banking institutions which are said to to constitute its so-called “unofficial reserves.” (Reuters, 30 January, 2011).

Egypt’s external debt, which has increased by more than fifty percent in the last five years is of the order 34.1 billion (2009). What this means is that these Central Bank reserves are de facto based on borrowed money.

In early 2010, there was a large influx of hot money deposits into Egyptian government debt instruments.

Foreign exchange flows into the country and is exchanged for Egyptian pounds (EgP), which are then used by institutional investors and speculators to purchase high yielding government bonds and treasury bills (denominated in Egyptian pounds) with short term interest rates of the order 10 percent.

The interest rate on long term government bonds shot up to 7.2 percent at the outset of the protest movement. (Egypt Banks to Open Amid Concern Deposit-Run May Weaken Pound, Lift Yields – Bloomberg, January 2, 2011)

At the onset of the crisis, international investors owned about $25bn of Egyptian T-bills and bonds, almost a fifth of the total T-bill market and about 40 per cent of the domestic bond market. Foreign investors also accounted for about 17 per cent of the stock market’s turnover, and held about $5bn-$6bn of Egyptian shares. (Ibid)

Under its agreement with the IMF, Egypt is not allowed to implement foreign exchange controls. These hot money deposits are now leaving the country in anticipation of a devaluation of the Egyptian pound. In the days preceding Mubarak’s speech, capital flight was running at several hundred million dollars a day.

In a bitter irony, Egypt deposits 21 billion with the commercial banks as “unofficial reserves” on the one hand, while the commercial banks acquire $25bn worth of EgP debt, with a yield of the order of 10 percent. What this suggests is that Egypt is financing its own indebtedness.

The protest movement started on a bank holiday. While the closure of the Cairo stock market and domestic banking system had put a temporary lid on the outflow of money capital, large amounts of capital flight instrumented by major financial institutions had already occurred in the days leading up to the protest movement.

Egypt’s banking system reopened on February 5, leading to a renewed process of capital flight resulting in the depletion of central bank reserves and a corresponding increase in Egypt’s foreign debt.

Following the money might be a good idea. In polities in which spin is everything, the public officials of the respective democracies are more accountable to the legerdemain of the media theatre than to the audience.

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