On the post-Mubarak Egypt

This blog is meant to be written for topics related to, mainly, economics, not politics. Politics is not my first choice, but the crisis unfolding in Egypt gave me a food of thought on the post-Mubarak era, which I think is rarely mentioned or imagined in the media.

We have to think of a new factor in assessing the Middle Eastern politics, which is rapidly emerging in the region. It's people, not authoritarians. What do Egyptians think now? Information available now on Egyptian protesters is pointing to one palpable feature: they hate the US, irrespective of fundamentalists or secularists. In fact, Anderson Cooper, CNN's renowned newscaster, and several of his crews were punched several times in Egypt, and other journalists from BBC or ABC news are also reported to be roughed up in the crowd. The reason is simple: those journalists are from the West which Egyptians hate.

Many analysts have a point to see that the Obama administration is so totally unprepared for the situation that their reaction is belated and awkward facing people's sudden anger, at a loss of which way to go. This analysis isn't unwarranted, but we have to think ahead of it. The thing is that even if Obama team moves fast to make its position clear to anyone, the situation wouldn't change so big: Egyptians hate Americans.

It doesn't mean that Obama should back up falling Mubarak, ignoring and if necessary suppressing people's demand for the resignation of a longtime ruler for the sake of regional stability. It's the worst way to respond to the crisis, and would ignite people's anger so much that another extreme regime is inevitable in African continent. Even so, it looks like that given Egyptians hatred against the US, the post-Mubarak government, be it fundamentalists or secularists, has little choices but to distance itself away from the US, which gets a room for China and Iran to have a say in Egypt's politics. Or the post-Mubarak Egypt would at least slightly lean toward the two countries, not to provoke the West.

In fact, Iran has already voiced support for the uprising, triumphing its Islamic revolution in 1979. On the contrary, China hasn't done anything but to issue a short statement in hope of stability and order. The country fears that uprising fans out to their own, which could undermine their polity, so it has no intention to get into other countries' turf right now.

However, if Egypt alienates itself from the US, now Egypt's top export partner, China might fill in the blank after the US leaves. Europe has no ability or intention to do that. China would be satisfied with a country as long as it's a good partner with China in trade or politics no matter how badly it governs.

The US should be ready to deal with anti-West Egypt and the resulting disruption of oil markets. It's time to think realistically.

Egypt, Inflation, Revolution

Inflation is, among others, conceived to be the biggest risk facing the current economy around the world. Or policymakers think so. Egypt is not an exception. Protesters are ostensibly demanding the resignation of President Hosni Mubarak, who has ruled the country for nearly 30 years. But we have to think twice what angered Egyptian people.

It's not necessarily wrong to claim that Egypt's tumult has been just inspired by the ouster of Tunisia's President Ben Ali, who ran the country for more than 20 years, in response to the uprising of protesters. There wouldn't be no protesters on the streets in Egypt without Tunisia's overthrow. But more careful consideration would be required to figure out the true cause behind the scene. That's inflation.

Economics isn't always the cause of everything. Nonetheless, Egyptian's grumble over corruption and stagnation under the prolonged reign of the current president wouldn't reach the turning point without skyrocketing inflation in the country. In fact, prices rose 13.5% in 2008 in the Middle East, a 13-year high since 1995. Among them, prices jumped 16% in Egypt in 2009, the highest in the region.

This all happened despite the good track record of Middle Eastern economy, whose growth doesn't pale in comparison with ASEAN countries, or even excels South America. It wouldn't be difficult to imagine that higher inflation, which lessens real income, leads to people's discontent.

This "inflation theory" doesn't apply to Tunisia, whose inflation has recently been lower than the region. Nevertheless, world policymakers, especially those in dictatorship, might want to learn very important lessons from the crisis under way in the Middle East.

Brazil to curb currency speculation

Brazil is set to impose another measure to curb the appreciation of its currency real against the dollar, thus preventing speculative money from flooding into the economy. According to a Bloomberg report,

The new rules have the potential to reduce short positions in the dollar to $10 billion from $16.8 billion in December as banks seek to avoid paying reserve requirements on currency operations, Aldo Mendes, the central bank's director of monetary policy told reporters in Brasilia.

Starting April 4, Brazilian banks will need to deposit in cash at the central bank 60 percent of their short positions in U.S. dollars above $3 billion or their capital base, whichever is smaller. The reserves will not earn interest, Mendes said.

Brazil's move is quite understandable given the recent steep rise of the currency. In fact, according to the BIS, Brazil's real exchange rates have increased 33% in the last two years, the third biggest gain among all 58 countries which the BIS covers in the broad effective exchange rates data.

It's excessively odd that China, the fastest growing economy in the world, has one of the weakest currencies of all.