Egypt and Tunisia head to G8 for economic succor

DNE
DNE
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TUNIS: Egypt and Tunisia, the poster nations for the popular uprisings that swept the Middle East, head this week to an annual meeting of the world’s rich nations to save their countries from the economic consequences of their revolutions.

As tourists shun these once popular destinations and war rages in neighboring Libya, the creaking economies of Tunisia and Egypt teeter on the edge of crisis.

"What we need is cash," Tunisian Finance Minister Jaloul Ayed told The Associated Press ahead of the summit. "Securing prosperity is the best way to consolidate democracy."

Tunisia, followed by Egypt, kicked off what is now being called the "Arab Spring" in which broad-based popular movements took to the streets demanding greater rights and political representation from their authoritarian governments.

But the street demonstrations in Cairo and Tunis that thrilled and inspired the Arab world also drove away the tourists and investors on which these economies are heavily dependent.

Their new governments have pinned high hopes on a summit Thursday and Friday with President Barack Obama and other leaders of the Group of Eight industrialized nations. But any summit pledges are unlikely to be a magic wand that creates millions of jobs and lures travelers and rich companies into countries whose new leadership remains fragile and whose economies are likely to get worse before they get better.

The two countries are now caught in the midst of uncertain political transitions as the authorities struggle to satisfy restive populations that overthrew the previous government partly over economic concerns.

"The first thing they will be looking for is direct financial aid," said Said Hirsh, a Middle East economist with Capital Economics consultancy in London. "Both countries need quite a lot of money considering the hit to their economies and their revenues."

The two countries will also be trying to show international investors they are still sound investment destinations — which might be a tall order as the future shape and policies of their governments remains unclear.

"There is no clear direction what kind of policies the governments will be following … when elections are held," Hirsh noted. Prosecutions of politicians in Egypt once known for their investor-friendly policies, as well as some businessmen linked to the ousted regime, have also unsettled foreign investors — as has a wave of labor strikes.

This week’s discussions at the chic Normandy resort of Deauville will bring together US, Canada, Britain, Germany, France, Japan, Italy and Russia for what the French hosts are calling "the founding moment" of a partnership between the G-8 and the countries of the Arab Spring.

They will meet with the leaders of Tunisia, Egypt and the Arab League to hash out details of what is being called a "Marshall Plan" for these countries, similar to the massive US aid to Europe after World War II that helped the continent rebuild and stave off communism.

World Bank President Robert Zoellick announced Tuesday that a $6 billion plan had been drawn up together with the International Monetary Fund to address budget shortfalls as well as project financing.

He cautioned, however, that the funds, $4.5 billion of which is for Egypt, are predicated on further market-friendly reforms — precisely the kind of measures that helped spark labor strikes under the previous government.

"Our support, and that of others, can sustain momentum and accelerate progress, but only if coupled with real reform," Zoellick said in a statement.

Both Egypt and Tunisia are expected to grow as little as 1 percent in 2011 — a dramatic drop especially in the case of the Egyptian economy, which had been forecast to expand by nearly 6 percent before the unrest.

Egyptian Finance Minister Samir Radwan said last week that the budget deficit could hit $31 billion in the coming fiscal year, representing as much as 11 percent of the GDP.

He has said the country needs between $10 and $12 billion through June 2012, of which about $2.2 billion is expected to come through a World Bank loan, while another portion could come from the IMF.

The US is offering up to $2 billion in new aid through a combination of debt swaps, loans and financing guarantees, and on Tuesday, Qatar’s ambassador to Egypt said his country could pump in as much as $10 billion in investments and projects into Egypt.

The focus of this effort, and others like it, has been on job growth and development as means of restarting the economy.

"This is the Egyptian approach, development projects that create job opportunities and revive the national economy," said Ahmed Orabi, a retired diplomat once responsible for the G-8 dossier at the Egyptian Finance Ministry.

The hope for Egypt is that a series of pledges and guarantees from the most powerful countries in the world will maintain international confidence in the economy and keep flowing the foreign investment that can generate jobs.

Ayed, Tunisia’s finance minister, said his country needs about $3.6 billion to finance its budget, of which it has already procured about a third and is looking for the rest from international development agencies.

Tourism, which has dropped by an estimated 40 percent, employs 400,000 in this country of just 10 million people and makes up 6.5 percent of the GDP.

Tunisia’s unemployment, already a problem and one of the sparks for the uprising, is expected by economists to rise from half a million to 700,000 people — some 20 percent of the working-age population.

Ayed said he anticipates little problem raising the money "as long as the situation doesn’t deteriorate" — potentially a big "if" amid renewed demonstrations over the pace of political reforms.

An intensification of fighting in neighboring Libya also could send more refugees pouring into Tunisia.

"It could become quite catastrophic," said Ayed. "Tunisia does not have the means" to cope with the flow. He said he would appeal to the G-8 for emergency funds and standby facilities to cope such an emergency.

While US officials say G-8 countries will discuss their role in helping countries in the region, they say it is too soon to reach a deal on dollar amounts for assistance.

The European Bank for Reconstruction and Development, a London-based institution set up in 1991 to foster transition to market economies in post-communist Europe, could be "repurposed" to focus its expertise on the southern Mediterranean region, a top official in French President Nicolas Sarkozy’s office said, speaking on condition of anonymity because of protocol.

Egypt, with its 80 million people and key geostrategic location, has already received a great deal of attention and pledges of aid, but a group of 21 top international economists, including Economy Nobel Price laureate Joseph Stiglitz, urged the G-8 not to forget Tunisia.

In a May 17 statement, they proposed a budget of $20 billion to $30 billion over five to 10 years to fund development and infrastructure projects in the country, especially in the impoverished interior away from the beach resorts.

The economists stated that an economic crisis in the country could torpedo the democratic transition and that would be "a victory of all dictatorships of the region and a severe defeat for democracy."

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