Bloomberg News

Egypt’s Army Defends Conduct Amid Growing Economic Concerns

October 12, 2011

Oct. 12 (Bloomberg) -- Egypt’s ruling military council denied claims it killed protesters last week, amid growing concerns over its handling of a transition to civilian rule and the impact on the country’s ailing economy.

“Were they killed by the armed forces? Certainly not,” General Mahmoud Hegazy told reporters today, referring to clashes between protesters and security forces on Oct. 9 that left at least 25 people dead. Demonstrators say some of those were killed by gunfire and others crushed to death by a military vehicle, in the worst violence since the popular revolt that ousted former President Hosni Mubarak in February.

Finance Minister Hazem El Beblawi submitted his resignation yesterday, citing security concerns after the deaths. His departure would have delayed and disrupted talks with Saudi Arabia and the United Arab Emirates for $5 billion in loans, said Alia Moubayed, London-based senior economist at Barclays Capital. El Beblawi said today he was reconsidering his decision to quit after the army rejected his resignation.

The Egyptian economy is struggling to recover from this year’s political turmoil. Gross domestic product contracted 4.2 percent in the first quarter and rose 0.4 percent in the following three months, according to official data. The government’s borrowing costs have soared to the highest level since 2008 after foreign investors slashed their holdings of treasury bills, leaving domestic banks to buy the debt.

The day after the clashes the country’s benchmark stock index, the EGX 30, declined 2.3 percent to the lowest level since March 2009.

Ministerial U-Turn

El Beblawi said today it may be “more logical” for him to stay in his position, which he has occupied for three months. “I have resigned for political reasons but I don’t want my resignation to have repercussions on the economy,” El Beblawi said in a telephone interview.

The finance minister, who is also deputy premier, yesterday said he was resigning due to a “severe breach of the security and safety of society” after the violence, according to the state-run Middle East News Agency.

Adding to yesterday’s political disarray were comments by Prime Minister Essam Sharaf, who said the Cabinet “puts its resignation at the disposal” of the council. He said the move was “standard procedure and doesn’t mean” that the government had quit.

IMF Support

El Beblawi said last month he had “no inhibitions” about proposals by the International Monetary Fund to support the country. Egypt turned down a $3 billion loan offer from the fund in June.

“Any delay or disruption in bringing financial support to Egypt will undermine the sentiment of investors, both domestic and international, and will put additional pressure on the currency,” said Moubayed.

Egypt’s foreign reserves fell for the ninth straight month this year to $24 billion in September.

Sectarian tensions have increased amid fears by many Christians that Islamists will have more influence in post- Mubarak Egypt, where parliamentary elections are scheduled to start on Nov. 28. The fighting erupted while Christians were protesting an attack on a church in southern Egypt.

The Oct. 9 demonstrations started peacefully and then turned violent when protesters were attacked by men in civilian clothing who pelted them with stones, witnesses said. Demonstrators later clashed with security forces in central Cairo. The army, which has ordered the Cabinet to form a fact- finding committee to investigate the violence, said that some protesters had been carrying swords and Molotov cocktails.

Sawiris Warning

The Free Egyptians party co-founded by Christian businessman Naguib Sawiris said in an e-mailed statement that it “warns the military council that continuing to handle events with force will shake the trust that Egyptians have given it.” It called on the army to “shoulder its responsibility to protect Christian establishments” and called the violence “a clear attack on the freedom to peacefully protest.”

“The gap between the revolutionaries and SCAF has been widening,” Hani Sabra, an analyst at Eurasia Group said, referring to the Supreme Council of the Armed Forces, the official name of the military council. “But not everyone hates SCAF. SCAF does enjoy some support as guarantors of stability.” The prime minister’s “popularity with young revolutionary activists has plummeted. They view him as more of an enabler of the military council.”

--With assistance from Vivian Salama in Abu Dhabi. Editors: Digby Lidstone, Heather Langan.

To contact the reporters on this story: Abdel Latif Wahba in Cairo at alatifwahba@bloomberg.net; Alaa Shahine in Dubai at asalha@bloomberg.net

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net; Andrew J. Barden at barden@bloomberg.net.


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