CAIRO, Egypt - Egypt's embattled government scrambled Thursday to raise new funds while investors braced for a potential drubbing on the stock market as uncertainty mounted over the country's political future.
Just three days after it auctioned off 13 billion pounds in Treasury bills and found only domestic buyers interested, the Central Bank launched another offer on Thursday for 3.5 billion in six month bills. A third auction of three-month T-bills was slated for Feb. 13, the same day as the Egyptian Exchange was to reopen after a two-week closure.
It's a day about which few feel comfortable, especially after the exchange's benchmark index shot down about 17 per cent in two sessions before the start of the weekend on Jan. 28 brought the rout to a temporary halt. It hasn't reopened since.
"The market is going to decline," said Wael Ziada, head of Egypt research at the Cairo-based investment bank EFG-Hermes. "There is no doubt that there is some pressure, and it's been building up ever since the market has been closed."
Egypt's military announced Thursday on national television that it stepped in to "safeguard the country" and assured protesters that President Hosni Mubarak will meet their demands in the strongest indication yet that the longtime leader has lost power. In Washington, the CIA chief said there was a "strong likelihood" Mubarak will step down Thursday.
Even if Mubarak stands down, any successor will have to deal with problems that have accumulated over decades and include widespread poverty, low wages, rampant corruption and a weak industrial base.
It was anyone's guess, however, how steep the stock market fall might be. Ziada, and other experts, discount the likelihood that the market would crash.
But even steep declines -- despite new measures announced this week to halt trading on the broader EGX100 index in case of 5 per cent or 10 per cent shifts -- are a clear reflection of the tension in the country and the worries that any hopes for substantial growth in the economy may have to wait until 2012.
The reason for the uncertainty was the fluidity of the developments over the past 17 days. Demonstrations that began with the tens of thousands in Cairo turned into protests of over a quarter-million people demanding Mubarak's ouster.
Even as the political developments escalated, so too did the protests.
Now, adding to their numbers are tens of thousands of workers from virtually all sectors who have begun to go on strike, arguing that largely stagnant salaries that inch up by a few dollars a month are no match for surging food or housing prices. These were complaints that no government -- be it led by Mubarak or someone else -- would be able to solve immediately.
"I've been working for 12 years, and my salary is 320 pounds ($55), said Gamal Ahmed Abdullah, a 37-year-old public transport worker who has three children and says he pays 250 pounds ($42) per month in rent.
"I work part time as a cleaner," he said. His main complaint is one echoed by thousands of his colleagues: "I want to live."
It's a request that has become an increasingly tall order for the roughly 40 per cent of the country's population that lives below or just above what the World Bank says is a poverty line of $2 per day.
Among those who went on strike were workers at companies that provide support services for the Suez Canal. While traffic through the canal itself has yet to be affected, the worries internationally that the key artery could be disrupted have helped widen the spread between the Brent crude oil futures in London and the U.S. benchmark in New York to over $11 per barrel.
There would, however, be no quick fixes, despite the government's promise to boost salaries and pensions by 15 per cent for civil service workers and retirees, or provide compensation through an $890 million fund for business owners harmed by the protests, among other steps.
Equally telling of the shift in the country, Egyptian state television, which normally sanitizes its broadcasts in favour of the government, aired several workers screaming about their financial troubles. Meanwhile, young reporters from the state-run Al-Ahram newspaper have been calling for the firing of the editor-in-chief and an apology to be printed on the front page for the skewed coverage the publication has been providing of the so-called Tahrir Revolution. The protesters have been gathered at Tahrir, or Liberation, square.
The initial beating taken by the economy as tourists fled in the first days of the protests helped pull the Egyptian pound down to six year lows of almost 6 pounds to the dollar. Central Bank intervention by pumping dollars into the system to ensure bank liquidity helped reverse the decline. But the pound was again inching down on Thursday, trading at 5.880 to the U.S. currency.
On the most basic level, that devaluation threatens to undercut any efforts to rein in food inflation that runs at 17 per cent per year, and which has been one of the cornerstones of the anger on Egypt's streets.
Even if the bank intervenes again to boost the currency, as it has indicated it is willing to do, the government faces a host of other challenges.
Downgrades in its ratings and outlook by the three major international ratings agencies are likely to boost the borrowing costs for the government and further sound alarms for potential investors. The ramped up spending to appease the irate population, meanwhile, will mean that the government will miss by a mile its budget targets and stall its deficit cutting efforts.
The unrest is also widely expected to batter the country's key sources of foreign revenue: tourism, the Suez Canal, remittances from Egyptians abroad and foreign direct investment.
The rioting, looting, arson and general lawlessness that gripped Cairo in the first days of the protest drove at least 160,000 foreign tourists from Egypt -- just through the capital's airport.
In many of the capital's top hotels, the only guests for days were journalists. In other neighbourhoods where foreigners live, school attendance was down to just 20 per cent in some grades after governments and the United Nations evacuated citizens, staff and nonessential personnel. Several international companies followed suit.
Egyptian officials have said the unrest has already cost the country $1 billion to $1.5 billion in tourism revenues -- a level that economists agree is inflated.
"What's very obvious is that if we don't have a stable country by June, the (economic) impact will be serious," said EFG-Hermes' Ziada. The protests are going to affect "investment, tourism, (foreign direct investment), consumption -- they're all going to be impacted."
"You're going to get the worst hit in a decline in investment and tourism," he said, adding that foreign investments "are likely to go down to near zero in 2011."
