Crisis in Egypt

It was just such a crisis that saw the start of the Arab spring

Short of Money, Egypt Sees Crisis on Fuel and Food

NY Times,

4 April, 2013

QALYUBEYA, Egypt — A fuel shortage has helped send food prices soaring. Electricity is blacking out even before the summer. And gas-line gunfights have killed at least five people and wounded dozens over the past two weeks.

The root of the crisis, economists say, is that Egypt is running out of the hard currency it needs for fuel imports. The shortage is raising questions about Egypt’s ability to keep importing wheat that is essential to subsidized bread supplies, stirring fears of an economic catastrophe at a time when the government is already struggling to quell violent protests by its political rivals.

Farmers already lack fuel for the pumps that irrigate their fields, and they say they fear they will not have enough for the tractors to reap their wheat next month before it rots in the fields.

United States officials warn of disaster unless Egypt soon carries out a package of tax increases and subsidy cuts tied to a $4.8 billion loan from the International Monetary Fund. That would persuade other lenders that Egypt was creditworthy enough to obtain billions more in additional loans needed to meet its yawning deficit. But fearful of a public reaction at a time when the streets are already near boiling, the government of President Mohamed Morsi has so far resisted an I.M.F. deal, insisting that Egypt can wait.

Those who say Egypt cannot afford enough fuel are “trying to make problems for Dr. Morsi and his party,” said Naser el-Farash, the spokesman for the Ministry of Supply and Internal Trade and a fellow member of the Muslim Brotherhood’s political arm.

Mr. Farash placed blame for the shortage of fuel on corruption left over from the government of Hosni Mubarak, combined with hoarding inspired by fear-mongering in the private news media. “They are against the revolution,” he said.

Independent analysts say that the growing shortage of fuel and the fear about wheat imports now pose the gravest threats to Egypt’s fragile stability. “It has the potential to make things very, very bad,” said Yasser el-Shimy, an analyst for the International Crisis Group.

Egypt has held two years of unsuccessful talks with the I.M.F., and the current government is still balking at the politically painful package of overhauls — even as rising prices and unemployment make those measures more difficult with each passing day.

“They are operating on the notion that Egypt is too big to be allowed to fail, that the U.S. and the West will step in,” Mr. Shimy said. “They think Egypt has a right to get the loan, and I think they will probably keep pushing all the way.”

Officials of the Morsi government have indicated that they prefer to wait until the election of a new Parliament, which might demonstrate broader public agreement on the need for changes. But a court decision striking down the election law has postponed the vote until at least the fall, and many economists say Egypt cannot endure the delay.

“The situation is pretty urgent, because the deterioration accelerates,” a Western diplomat said, speaking on the condition of anonymity under diplomatic protocols. Shortages, the diplomat said, are already leading to layoffs.

Energy subsidies make up as much as 30 percent of Egypt’s government spending, said Ragui Assaad, of the Economic Research Forum here. The country imports much of its fuel, and for the first time last year it was forced to import some of the natural gas used to generate electricity — the reason for the recent blackouts. Egypt also imports about 75 percent of its wheat, mixing the superior foreign wheat with lower-quality domestic supplies to improve its subsidized bread.

But the two years of mayhem in the streets since the ouster of Mr. Mubarak have decimated tourism and foreign investment, crippling the economy. The government’s reserve of hard currency has fallen to about $13 billion from $36 billion two years ago.

About half of its currency reserves are in illiquid forms like gold, economists say, while billions more are owed to the foreign companies that operate Egypt’s oil and gas fields. And as a result of the outflows of hard currency, the value of the Egyptian pound has also been falling.

Diesel fuel is the crux of the crisis, in part because Egypt has a very limited capacity to refine it. Diesel is also essential to much of the economy. Not only do farmers use it to power machinery for irrigation and harvesting, diesel truck fuel contributes to the price of almost everything shipped.

Mr. Farash, of the supply ministry, insisted that Egypt was still importing just as much fuel as it did three years ago before the revolution, and he blamed the leaky distribution system for the perception of a crisis. Tanker trucks sell diesel on the black market before reaching gas stations, he said, and thieves run phantom gas stations that exist only on official maps.

“Did you hear about the donkey who drank diesel and died?” Mr. Farash asked, suggesting that anxious farmers had filled barns with fuel. “There is enough,” he said, “but people are behaving like there will not be enough, and a large part of the problem is the behavior of the people.”

He said the Morsi government was installing a “smart card” system for tanker trucks, to track the supply of fuel and ensure that full shipments reached their destination. “In one week or two weeks the problem will be solved,” he said.

As for wheat — used for subsidized bread that the government says sustains 16 million families — Mr. Farash said Egypt had enough on hand to last through the end of the fiscal year in June. Contrary to news reports here, he said, the government sees no need to ration it.

But he said the government was cracking down on corruption at the bakeries, too. Instead of subsidizing flour, he said, the supply ministry is testing another system of smart cards to pay bakers based on the number of discounted loaves they sell, to prevent them from reselling deeply discounted flour. Hundreds of angry bakers protesting in Cairo have already closed streets downtown.

“Some of the bakers want to continue the old system because it is better for them,” Mr. Farash said, “but it is illegal.”

At diesel lines in Cairo, though, truck and bus drivers say that cracking down on corruption offers little consolation.

“How can we make enough money to feed our families?” asked Ibrahim Hussein Ibrahim, 31, who had waited in line in his bulldozer for more than four hours on Thursday morning. He said he usually earned the equivalent of about $10 a day in construction, but employers were telling him they could pay him only half as much because he spent half the day waiting for fuel.

Diesel now sells on the thriving black market for more than twice the official subsidized price — though the black market price is still less than $2 a gallon, less than half the price in the United States, reflecting Egypt’s heavy subsidies.

Here in the Nile Delta, Ali Mehrous al-Dairy, the patriarch of a farming family, said that even though his four sons waited in line at four different gas stations overnight to fill jerrycans, in the past two weeks they had more frequently all come home empty. Fuel is now hard to come by even on the black market, he said, and black market fuel is often so diluted with water it damages engines.

“By God, I don’t know what we are going to do,” he said, looking over motionless irrigation pumps empty of fuel.

If diesel is still scarce next month when the harvest begins, “There will be a revolution of the hungry,” said Adbel Moneim Abdel Hady, 40, another wheat farmer.

At the empty Mobil gas station in town, attendants said profiteers, hoarders and desperate farmers were already threatening them with knives, clubs and shotguns. At harvest time, “People are going to kill each other,” said Hamdy Hassan, 37, a truck driver hanging out at the shuttered station.