The IMF’s Arab Spring Leaps
Mideast stock markets which have mostly struggled this year were buoyed by the resumption of negotiations for an IMF loan by Egypt’s new President Morsi as respective $2 billion and $6 billion programs were inked with Jordan and Morocco. Tunisia too after renouncing resort may consider a facility as the World Bank extended banking sector and job creation assistance. The Islamic party-led regime will increase spending to compensate “victims” of the Ben Ali era and the central bank head, finance minister, and anti-corruption chief have all resigned after challenging reform direction. The sovereign was again downgraded after a US guarantee enabled commercial bond return as equities are off 2 percent through July. The chaos in Libya despite successful elections continues to weigh on cross-border trade while Mahgreb neighbor Algeria may soon offer bourse rivalry with listing and privatization initiatives. Jordan has experienced energy and political shocks following disruption of gas supplies and consecutive cabinet reshuffles as the king and parliament try to agree on updated responsibilities. Morocco has been the laggard with a 15 percent loss on Eurozone export, investment and remittance damage and stubborn fiscal and current account deficits. The royal leadership raised budget subsidies in response to popular demonstrations, and bad weather squelched agricultural output. The currency is pegged to a foreign basket and reserves cover just four months’ imports. A EUR 1 billion external bond was placed in 2010 and with the Fund’s precautionary line a Gulf-directed issue may be attempted. Elsewhere in the region an anti-poverty credit was signed with Yemen after former president Saleh went into exile and Sudan may eventually qualify for help following a north-south deal on oil which may further lift sanctions on Khartoum. However GDP has plunged 10 percent with South Sudan independence and the central bank has turned to gold trading for hard currency. 40 percent inflation has resulted from subsidy removal and pound depreciation and announced public sector layoffs sparked mass protests. The regime headed by accused war criminal Omar al-Bashir has been in power almost 25 years and security absorbs 70 percent of spending.
The IMF’s standby with Iraq was also extended until 2013, which was positive for dollar bonds. Prime Minister al-Maliki likely faces more no-confidence votes as his coalition has yet to find its footing and tensions mount with Kurdistan over oil proceeds and continued civilian attacks following US military withdrawal. Inflation is within the 6-7 percent target range despite dinar shakiness aggravated by dual crises in Iran and Syria. In Egypt the rate was falling from double digits toward that boundary in the aftermath of President Morsi’s nod but imported food costs may again spike. Foreign reserves are half the level they were during Mubarak’s departure and the central bank has become a key domestic debt buyer at 15 percent yields as averse foreign investors ponder the odds Fund talks this time pursue MENA’s agreeable path.
