By Mohamed A. El-Erian
El-Erian is the CEO of PIMCO. He spent part of his childhood in Egypt where his father was a professor of international law at Cairo University and then served as an Egyptian diplomat and was elected to the International Court of Justice in 1978. The opinions expressed are his own.
While Egyptians are yet to specify the final destination for their revolution — and only they can, and should do so — there is little doubt in my mind that the country is now on a new, bold and uncertain road toward greater democracy and individual freedoms. The next few days and weeks will be critical in determining the journey for a country that is central to the stability of the Middle East.
Undoubtedly, domestic political developments hold the key to what will happen. Egyptians need to converge on a common understanding and vision of “managed change”. And this vision must satisfy the millions of Egyptians — from all ages, religions and walks of life — that unite in Tahrir (Liberation) Square and elsewhere to better influence and improve their destiny.
Yes, street and state politics are the undeniable drivers today. This will involve both upheavals and compromises. Yet economics and finance will also play a crucial role, especially when it comes to the urgent recovery of an economy that has experienced one of the most dramatic “sudden stops” in recent history. In the process, this will also define how Egypt’s friends and allies can come off the sidelines and help the country’s unprecedented transformation.
For two weeks, economic activity was at a virtual standstill. Supplies dwindled. Banks and many shops closed. ATMs ran out of cash. Schools and offices were shut. Domestic and international trade was disrupted. Tourism evaporated.
Egypt’s economy will need to restart and reset. Three factors stand out in a process that is critical for the longer-term well-being of the country, including the millions of Egyptians that are protesting for greater freedoms.
First, Egypt’s banking system must resume normal operations in an orderly fashion. A very good start was made on Sunday to bring part of the system back on line, and important challenges remain.
The central bank has no choice but to flood the financial system with both domestic and dollar liquidity. And both the central bank and the commercial banks must continue to avoid the temptation to overly curtail deposit withdrawals lest that, in itself, fuel a deposit run.
Second, the Finance Ministry must deal properly with the unanticipated collapse in tax revenues. It must make sure that this temporary interruption in government receipts does not lead to even more destabilizing spending disruptions. Salaries must be paid promptly, and all supplier bills must be met.
Third, particular emphasis must be placed on targeted social spending, particularly when it comes to health, food subsidies, and shelter. Remember, Egypt’s poor are extremely vulnerable to the current economic and financial dislocations.
The challenge of such an orderly reset is an enormous one. It cannot be met easily by Egyptians alone. They will need help; and their courage and determination warrant international support.
Assuming a satisfactory political resolution, Egypt’s friends and allies will have a chance to support the country’s economic recovery. In particular, they should stand ready to provide central bank swap lines, as well as to significantly accelerate and redirect aid in the pipeline. And they should actively facilitate the involvement of institutions that already have effective links and extensive networks among the most vulnerable segments of Egyptian society.
A historic grass root movement has made massive sacrifices by taking to the street to bring greater democracy to the most populous country in the Middle East and North Africa. The movement has endured tremendous pain and taken enormous risks. Let their brave historic efforts be reinforced by properly resetting an economy that has been subjected to a dramatic sudden stop.
Photo, Top: An anti-government protestor shouts anti-Mubarak slogans after Friday prayers at Tahrir Square in Cairo February 4, 2011. REUTERS/Mohamed Abd El-Ghany
Bottom: Anti-government protesters carry a big Egyptian flag after Friday prayers at Tahrir Square in Cairo February 4, 2011. Tens of thousands of Egyptians prayed in Cairo’s Tahrir (Liberation) Square on Friday for an immediate end to President Hosni Mubarak’s 30-year rule, hoping a million more would join them in what they called the “Day of Departure” . REUTERS/Amr Abdallah Dalsh