Tunisia, Egypt and the ‘new and improved’ Arab state

The way events in Egypt are moving, if I do not put pen to paper today my thoughts will be stale by tomorrow!

The world has seen the removal of Tunisia's strong man, Ben Ali, a few weeks ago. Notwithstanding the Egyptian government's assurance that 'Egypt is no Tunisia' the winds (gales?!) of change are blowing through the Arab world's largest country. 

The coat of arms of the Tunisian state

Just as Japan broke the sheen of the 'white man' through its actions in China and the Far East in the lead up to World War Two, the toppling of Tunisia's long time ruler suddenly made the Arab world's ruling establishments look vulnerable. With all the unrest on Cairo's streets, two questions remain unanswered: What is next for Egypt? Which country is next in line?

The outcome of any revolution is difficult to predict. There are too many variables involved. In a combustible environment, these unknowns often combine together in a seemingly random manner and lead to surprising outcomes.

Events in Egypt are revolutionary by any measure.

Egypt is a country which until a few weeks ago implemented a zero tolerance policy for dissent. For the last few days, tens of thousands of protesters have defied curfew orders with virtual impunity. Draconian measures such as disabling the internet and cellular phone traffic have made no difference to people's ability to organize.

Egypt's three decades old president, Mubarak, has fired his government, made a concessionary late night television appearance and even sworn in a nominal successor. But the streets still swarm with Egyptians baying for his blood. Demonstrators seem determined to continue with their efforts until the current regime is a subject for history books. 

The Ottoman style Mohammad Ali mosque in Cairo

So far, the script follows the Tunisian model.

But the differences between Tunisia and Egypt are important. Tunisia is far wealthier than Egypt, with a per capita income of approximately USD 8,000 versus USD 6,200 for Egypt (purchasing power parity basis). Egypt's population is eighty million while Tunisia has eleven million inhabitants.

However, the most important distinction has nothing to do with size. Egypt has a history of grassroots based Islamic political activism while Tunisian politics are largely devoid of Islamists, mainly due to Tunisia's more secular political culture.

There is a real possibility that Egypt's Muslim Brotherhood may seize power in Egypt's should a power vacuum develop. The implications of an Islamist government running the Arab world's largest country are enormous. Not only will other Islamist movements obtain a 'prestige boost' but they are also likely to receive substantial moral and material support from their Egyptian brothers.

An Islamic regime in Egypt dramatically changes the political landscape in the Middle East. Among other issues, there is the Palestinian / Hamas question; Egypt's relationship with Israel and continued stability within Jordan.

Analysts who dismiss the possibility of Egypt taking an Islamist turn suggest that origins of the current unrest having no link with the Muslim Brotherhood. The movement is largely spontaneous and operates without the overt backing of the Brotherhood. However, one need only revisit Khomeini's overthrow of the Shah of Iran to be reminded that middle class revolutions can go horribly wrong.

Lest anyone has doubts about the ruthlessness and organization of Egypt's Islamists, one need only note that Al-Qaeeda's spiritual leadership and ideological guidance originates largely from Egyptian Islamist intellectuals. The assassination of Mubarak's predecessor, president Sadat, by military personnel provides another instance of Islamist intervention within Egypt's politics.

Undoubtedly, the Egyptian state is at a crossroads. Egypt is a lynchpin state within the Arab world. All eyes are watching Mubarak's fate.

If Egypt wobbles, which country is next? Yemen is often mentioned as a possibility. However, Yemen is a state with limited governmental control. Does it really matter if there is a regime change in Yemen? Unfortunately not. A regime change in Yemen may create more tactical space for Al-Qaeeda, ultimately inviting more US involvement. However, the US trajectory in Yemen is already in motion.

Algeria? Algeria went through a vicious civil war in the 1990s. The ruling establishment is entrenched. Any change will be cosmetic and probably not of as substantial a nature as in Tunisia.

Jordan? Morocco?  Certainly these countries are possibilities but it is too early to speculate.

Change in the Arab Gulf countries - unlikely. Discontent in Saudi Arabia spilled over earlier this century and was effectively contained by the authorities. A resurgence of similar violence appears unlikely.

The social contract in the remaining oil rich Gulf countries looks strong, especially as long as oil wealth is spread around the wider population. In these countries, the risk of social unrest, unless actively stirred by external forces, is low.

Mob psychology often appears random. It is easier to read tarot cards than predicting crowds and divining political fortunes. Long standing Arab rulers must be wishing there is more of a science to accurately determine the changing moods of their populations. Reading the odd blog post now and again may be the only way to gauge the mood of the silent majority.

Stranger in a strange land

Home: one's place of residence; the social unit formed by a family living together; a familiar or usual setting, congenial environment; also the focus of one's domestic attention; a place of origin. (Source: Merriam-Webster Online Dictionary)

Some call me confused. Me, I think I am just privileged. I can call more than one city home. In addition to cities, I identify several houses as home too. (Not houses owned by me, I must add!)

During my adult life, 'home' has encompassed several cities, all which have filled my memory bank with positive memories. However, I imagine one's city of birth will always have a special place for anyone. So it is with me.

Few may consider Karachi to be special. It's large with an undetermined population, probably somewhere around eighteen million. The city's infrastructure gave way sometime about a decade ago. Violent crime may not compare with Washington D.C. or New Orleans but surely Karachi cannot be too far behind these days. 

Tomorrow's Karachiites

But there's something about the city which is special to Karachites. Even for those of us who are first generation.

Karachi is a true mother to orphans. Unlike Singapore, there is no debate about immigration or foreign talent. No known or unknown quotas for permanent residency status or citizenship. No ethnic mixes to manage.

Walk into the city and make a home as best as possible. No questions asked. No declarations to make and no oaths to swear.

The city keeps accepting. The people keep coming. The poor keep dreaming of a better life. The rich keep getting richer.

But Karachi keeps its promises of freedom and opportunity too.

It's Karachi's kids. We are all **stards. We abuse the city and everything she gave and continues to give.

Rather than build we destroy. Rather than nurture our roots we depart and deprive. Our only consolation: for every one ingrate like me hundreds of newcomers arrive daily with dreams and hopes of their own.

Yet, it's my Karachi and that of seventeen million nine hundred and ninety-nine thousand other souls too. 

Karachi's National Academy of Performing Arts

If Karachi ever got whiff of Singapore's Maintenance of Parents Act, all us kids would certainly be in the dock. And we deserve to be. We don't have the gratitude or fortitude to give back even a fraction of what the city gave to us. Heaven knows that despite everything the city remains a good mother.

As for me, it really is good to be home again.

The Online Citizen joins the system

It is hard to argue with the idea that the Online Citizen (TOC) is not a political website. Any reader will appreciate the political and often controversial nature of discourse on TOC.

Of course, being a 'political' website is one thing and requiring registration under rules governing the media is quite another. Nevertheless, one must assume that TOC's principals were aware of the context in which they operate; Singapore's invisible (and visible) red lines within which they must nimbly tread.

Consequently, TOC's gazetted status should not surprise analysts. It was bound to happen sooner or later. The fact that TOC has been gazetted is reflection of the growing influence of New Media on Singapore's political scene. Specifically, TOC's loyal following amongst politically aware Singaporeans.

Now it is up to TOC to take the site's operations up a few notches. It should keep its nose clean while continuing opinionated reporting with a constructive bent; create a structure which can manage the site as a proper news media organization. A structure virtually necessary if the site is to grow and fulfil its potential.

Creating a sustainable organization is no easy task and cannot be done overnight. Most of TOC's hard work is done. TOC has a brand image it can build upon.

One has sympathies with TOC volunteers who will in future have to make considerable efforts to abide by 'corporate standards' to maintain the site. However, without a proper structure TOC will find it difficult to grow as an organization. With growth comes greater ability to influence change.

With focus, vision and some luck, TOC may compete effectively with the mainstream media as a news resource, at least within certain niche segments. In order to do so, TOC must embrace the system.

Fighting the system will most certainly be counterproductive. Joining the system does not mean compromising one's ideals, it means tempering them with a slight dose with reality.

TOC should wear its gazetted status as a badge of honour. It is TOC's bar mitzvah party. Now it is up to TOC's principals to use their new found recognition for positive change.

The UAE Dirham, currency politics and monetary policy

Currencies are a prized symbol of national sovereignty. As countries regained their independence in the decades following World War Two, the number of currencies in existence jumped dramatically. Newly independent countries jettisoned the currencies of former colonial masters and proudly unveiled their own currency notes and coins.


The emblem of the UAE

In the 1970s, the Gulf emirates also embarked on a nation building process, including economic reform and development. A national currency was introduced in 1973, when the United Arab Emirates (UAE) dirham began circulating. The dirham replaced the Qatari Riyal, Dubai Riyal and Bahraini Dinar, which were variously used as legal tender in the several emirates until that date.

Initially, the dirham was issued by the UAE Currency Board. The Board was not authorized to conduct monetary policy for the union. Instead, the Board's functions were "to issue the dirham and ensure full coverage in gold and foreign currencies." 

Monetary policy is the process by which a country's central bank manages the supply of money to achieve a balance between growth and stability within the economy, including stable prices and low unemployment. Typically, monetary policy is conducted by targeting a level of interest rates within the economy.

For national economic managers, monetary policy is a powerful tool, especially when used in coordination with fiscal policy. Within the UAE, monetary policy is the preserve of the UAE Central Bank. The Central Bank is tasked with the "organization of the monetary, credit and banking policy and the supervision of its implementation [within the UAE]." 

The Central Bank replaced the Currency Board in 1980.

During the last several decades, the UAE's economy and financial system have been served well by maintaining an exchange rate regime which pegs the dirham's value to the US dollar at a fixed rate. The business community comprising of traders, industrialists and entrepreneurs has the benefit of strategic financial planning in the context of a stable currency exchange rate.

Undoubtedly, the UAE's exchange rate regime is one of the crucial factors which helped engineer the rapid development of the UAE economy into a regional trading and financial powerhouse. However, the UAE's fixed exchange rate regime has the side effect of abdicating the country's monetary policy to US policymakers.

US policymakers, by definition, are concerned mainly with the vagaries of the US domestic economy. The UAE economy is far from their minds when devising and implementing US monetary policy.

The historical US dominance of the international economic stage meant that in the past US monetary policy generally fit the UAE economic environment. However, the world economy has changed in many ways during the last few years.  

For starters, the US dollar's role as the world's paramount reserve currency is eroding. The proportion of international reserves held by national governments' in US dollars has been in steady decline for years.

Which currency replaces the US dollar is an open question. The Euro is certainly not an ideal candidate, especially given the woes surrounding members like Greece and Ireland.

Indeed, it may be due to a lack of credible alternatives that the World Bank President, Mr. Robert Zoellick, recently suggested that a new international monetary system involving multiple reserve currencies with a role for gold as a reference point for market expectations of inflation and future currency values be given serious thought.

Today's UAE economy is structurally more diversified than when the exchange rate peg was established a few decades ago. Certainly, external influences continue to play a major role, but sources of global demand for the UAE's prime export commodity, i.e. oil, have shifted towards rapidly growing emerging markets.  

The result is a stronger UAE economy, less reliant upon the ups and downs of US economic cycles. It is because of this reduced dependence of the UAE economy that a comprehensive analysis regarding an independent UAE monetary policy is necessary.

Surely, an independent monetary policy cannot be wished into existence overnight. Policymakers must have appropriate interest rate management tools at their disposal. The financial infrastructure ought to include a yield curve across a range of maturities. A robust data gathering, analysis and dissemination system is called for. Key decision makers require timely and credible information to formulate optimal monetary policy.

Delinking the UAE's interest rate policies from the US will necessitate a shift from the US dollar – dirham peg. Otherwise, the UAE currency may become a tool for interest rate arbitrageurs; a development which could have adverse long term economic implications.

Clearly, achieving monetary independence might exact a short term economic price. Significant policy alterations are disruptive to any economy. However, as the UAE economy matures so too must the instruments available to manage the country's continued development. For the UAE, monetary policy flexibility may well become an essential requirement in the years to come.

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Imran is a business and management consultant. Through his work at Deodar Advisors, Imran improves the profitability of small and medium sized businesses. He can be reached at imran@deodaradvisors.com.

Happy New Year!

Best wishes for 2011 to all my readers.