Analysis: What if Egypt goes bankrupt?

Local and international media have been circulating ominous news about the Egyptian economy. Statements by the Central Bank of Egypt confirmed that foreign currency reserves decreased by another $1 billion at the end of September, which means there is a steady monthly deficiency and which also means that the remaining balance will cover only six months of imports.

Dr. Mohammed ElBaradei warned that bankruptcy might come after those six months, and the minister of labor and immigration, Ahmed al-Borei, said, “Egypt is on the verge of bankruptcy. My colleagues and I are crazy to hold these positions at such a critical time.”

Hazem al-Biblawi, the minister of finance and deputy prime minister, administered a few painkillers when he said in response to all these reports, “Egypt will not go bankrupt, but the situation is critical.”

In this “but” lies the real problem, for this little word opens the door for all kinds of bleak speculations.

The statement “the situation is critical” means we are actually approaching bankruptcy, especially since the rescue rope is being held by the people and the productive segments of those people are staging non-stop strikes and do not want to believe that there is little the government can do. How can their demands be met now? How can a country threatened with bankruptcy be able to give them salary raises or bonuses while everything has ground to a halt because of them?

Some ask, “What happens if Egypt declares bankruptcy?”

In that case, Egypt will be in the same state as any bankrupt person. Its land, utilities, and economy will be pawned by foreign powers. It will be the same as the end of Khedive Ismail’s rule.

Ismail was the ruler of Egypt from 1863 until 1879. He is credited with developing Cairo and for the 19th-century European style that characterizes many parts of the city.

He gave Cairo the glamor of Paris, and cleaned up the city, making it safer and healthier.

The remnants of this can be detected in Tahrir Square, from which Egyptians ousted Mubarak. In fact, before the 23rd of July Revolution took place, in 1952, it was called al-Ismailia Square, after its founder the Khedive. It was the center of that Parisian neighborhood he established under the same name and which since then has been renowned for its European architecture, palaces, and fancy buildings, as well as foreign embassies and consulates.

He started his project counting on the sudden hike in the price of cotton in the wake of the American Civil War and the subsequent halt in the export of American cotton. At that time, cotton was as precious as oil is now.

But as soon as the war ended and the American cotton was back, the Khedive found himself in a very difficult situation and debts reached 19 million pounds, a huge sum at the time. Egypt ended up bankrupt and foreign intervention followed in order to protect the rights creditors. In our present case, these creditors are world powers and international companies. Egypt fell under British colonization in 1882, and the disasters this triggered can be read in history books.