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Cairo, Egypt (The Media Line) – Egypt faces a risk-laden game of Beat the Clock as it tries to get its political house in order before its foreign currency reserves sink much more.

Reserves fell to $16.4 billion in January from about $36 million a year earlier, a drop that economists all agree imperils the economy and requires Egypt to seek support from external sources and make difficult decisions to cut back government spending and subsidies. But that will be difficult given the political situation.

Presidential elections are now scheduled for late May, preceded by a six-week election season. Meanwhile, a parliament dominated by Islamists is tussling over who will control the government with the interim military council. A dispute with the United States over foreign human rights activists detained in Egypt is threatening vital American aid to the country. In the meantime, no U.S. assistance is being transferred to the country.

The timetable looks even more challenging when the role of the International Monetary Fund (IMF) is factored in. Egypt’s Ministry of Finance is reportedly counting on the IMF’s executive board to approve a $3.2 billion facility towards mid-March, which will then go to parliament for approval about the time the presidential campaign is getting under way.

“Time is not on Egypt’s side and politics could be the prime suspect to derail or delay an IMF program or exacerbate dollarization and [foreign currency] outflows,” Bank of America Merrill Lynch analyst Jean-Michel Saliba said in a note to investors last week.

Concerns that Egypt’s political trajectory looks to be on a collision course with its financial needs came in the form a downgrade in its bond rating by Standard & Poor’s (S&P) on Feb. 10. S&P lowered its ratings to B from B+ on Friday, five notches into junk territory, and said further downgrades could be on the way.

“The negative outlook reflects our view that a further downgrade is possible if the government fails to stem the decline in reserves, or an uncertain policy environment and weak institutions emerge from the ongoing political transition,” S&P said. Moody’s and Fitch, two other bond-rating agencies, cut their ratings on Egypt earlier.

Diminishing foreign reserves may be the most immediate threat to Egypt’s economy, but it is not the only one. More than a year after the revolution that brought down Hosni Mubarak, economic growth has stalled, the number of visiting tourists has plummeted and foreign investment has evaporated, all of which is exerting huge economic pressure on the government at a time of political flux.

Bank of America Merrill Lynch estimated that Egypt’s drawdown of its foreign currency would slow to what it called a “more manageable” $500 million a month because the foreign capital that has been responsible for much of the decline has been nearly drained out of the country.

On the other hand, Egypt could also get a boost from a rare instance of foreign investment if France Telecom goes ahead with the purchase of a $2 billion stake in the Egyptian Company for Mobile Service, popularly known as Mobinil, which it agreed to buy from Egyptian entrepreneur Naguib Sawiris last week. If the transaction goes through, that money might be transferred to Egypt in March.

But Merrill also noted that Egypt’s finances look more precarious than the headline foreign reserves figures show. Taking out Egypt’s holdings of gold, reserves fall to $13.6 billion, which are equal to just 2.8 months of imports, Saliba wrote in the Feb. 16 note. Meanwhile, Egypt’s external financing needs could reach some $11 billion through June 2013, Finance Minister Momtaz el-Saieed said Feb. 10.

But accepting aid is politically problematic because the public looks askance at foreign assistance, especially from the U.S. Only 26 percent favor accepting American aid, according to a Gallup poll taken in December. The proportion willing to accept international aid rises to 50 percent (with 42 percent opposing) and those willing to accept it from fellow Arabs reaches 68 percent (28 percent opposing), Gallup found.

Egyptians don’t like aid because it usual comes with strings attached, such as unpopular economic reforms in the case of the IMF and maintaining the 1979 peace treaty with Israel, in the case of American assistance. Political opposition to foreign assistance caused the interim military government to reject the original offer of an IMF credit last spring, a decision many economists say has exacerbated the financial troubles in which Egypt now finds itself.

Parliament must approve an IMF loan, but Essam el-Erian, a leader of the Muslim Brotherhood’s Freedom and Justice Party, which dominates parliament, said his group may vote against it because it might impinge on Egyptian sovereignty. “Look at Greece,” el-Erian said in an interview with Bloomberg News this week. “Everybody is telling it what to do.”

Above and beyond accepting foreign financial assistance, the other remedies for Egypt’s foreign reserves ailment are all painful for politicians and the public alike.

One is bringing down the budget deficit. As the economy has shrunk and the government boosted handouts in the early days of the revolution to try and palliate the population, Egypt’s fiscal deficit has ballooned. Officials recently revised upward their forecast for the budget deficit for the fiscal year ending June 30 to 9.4 percent of gross domestic product.

The solution would be to cut spending, particularly costly and wasteful subsidies on food and energy. Indeed, the military government recently announced plans for $4 billion in spending cuts and the IMF and others providing aid will have their own list of fiscal measures. But political analysts suggest that will inevitably mean cuts to popular energy and food subsidies of the kind that have set off riots in the past.

Another remedy is devaluing the Egyptian pound. In spite of Egypt’s mountain of economic woes, the pound had shed only about 1 percent of its value over the past year as the central bank acted to shore up its value by raising interest rates and drawing down on reserves. But the bank’s options are narrowing as it is forced to devalue the pound, which will almost certainly lead to higher inflation.

Analysts see some positive elements in the Egyptian political scene. Saliba notes that the decision to move up the presidential vote to May reduces the length of the campaign season and the opportunity for grandstanding by candidates. Ahmed Galal, managing director of the Economic Research Forum in Cairo, maintains that the Muslim Brotherhood has taken a pragmatic line on subsidiary reform and supports free markets.

©2012. The Media Line. All Rights Reserved.

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Beijing, China (AHN) – China’s exports fell in January by 0.5 percent compared to a year earlier marking the first decline in two years, data showed Friday

Exports dropped to $149.94 billion while imports dived by 15.3 percent to $122.66 billion.

Despite the declines China’s trade surplus grew to $27.28 billion in January up from $16.52 billion the prior month.

Part of the decline was because many factories cut back production or close their doors for the Chinese Lunar New Year holiday, also known as the Spring Festival, which fell in January this year. Workers generally want to travel home to celebrate the holiday with family.

However, analysts say the slowdown is further evidence that China’s economy is taking a hit from continued weakness of demand from the struggling U.S. and eurozone economies.

 

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New York, NY, United States (AHN) – Wall Street opened lower Friday after a report showed that the U.S. economy expanded less than forecast..

Just after the opening bell, the Dow Jones Industrial Average was lower by 33 points, the Standard and Poor’s 500 Index was flat and the NASDAQ was up by about 6 points.

Weighing on stocks was a report that showed the U.S. economy expanded at 2.8 percent in the fourth quarter, less than the 3 percent that had been projected.

In Europe the Stoxx Europe 600 Index slipped 0.7 percent as investors await word on developments on the region’s sovereign debt crisis. European Union Economic and Monetary Affairs Commissioner Olli Rehn said authorities are “very close” to reaching an agreement on private-sector involvement in a Greek debt swap.

Despite those words of optimism, the dismal growth of GDP in the U.S. was keeping investors cautious. The health and growth of the U.S. economy is a very important and leading indicator of economic growth worldwide. As analysts like to say, “when the U.S. sneezes, the world catches a cold.”

In corporate news, Ford fell after reporting numbers that missed estimates. Starbucks shares slipped despite reporting better than expected numbers, and Juniper Networks plunged after the second biggest maker of computer networking equipment forecast sales and profits that missed estimates.

In commodities, oil was unchanged at $$99.60 a barrel, gold rose $4.70 to $1,725 a troy ounce and silver was up a few pennies at $33.63.

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Berlin, Germany (AHN) – Signs of an economic contraction in Germany’s economy raised fears of a recession in Europe.

The news escalated concern that demand for oil might fall, causing oil futures prices to drop by as much as 1.1 percent. In addition, the euro weakened against the dollar.

Germany has long served as the engine for economic growth for the entire European Union. Therefore, news that the German economy likely shrank by 0.25 percent during the last three months of 2011 caused alarm and has observers worrying the European Union might slide back into a recession.

Official figures from the Federal Statistics Office show that the German economy only grew by 3 percent during 2011 and that was only achieved because of strong growth during the first half of the year.

Moreover, the Statistics Office said that most of the growth during the first six months was driven by domestic demand. The Statistics Office based the annual figure on an estimate of fourth quarter growth. However, the government won’t post the official data for the last quarter until Feb. 15.

In the meantime, Norbert Raeth from the Statistics Office announced at a press conference Wednesday that the economy likely shrank by “around a quarter of a percentage point” in the fourth quarter.

Although the 3 percent growth rate was down from the 3.7 percent in 2010, Germany still had a stronger figure than the United States or the EU.

According to the Organization for Economic Co-operation and Development (OECD), among its member nations Germany showed better growth than the expected growth rate of the following nations:

• U.S. 1.7 percent
• France 1.6 percent
• United Kingdom 0.9 percent
• Italy and Spain 0.7 percent

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Washington, DC, United States (IRIN) – AIDS activists have welcomed a pledge by U.S. President Barack Obama to provide antiretroviral treatment to some six million people globally by 2013, an increase of two million on the previous target.

“Obama has shown political will and leadership in doubling the pace of treatment initiation… he has made a down-payment on ending the AIDS crisis globally,” said Asia Russell, director of international policy at the health advocacy NGO, Health Global Access Project (Health GAP), which has been urging the US to take the lead in the global fight against HIV/AIDS.

In 2010, some 3.2 million people were accessing ARVs through the US President’s Emergency Plan for AIDS Relief (PEPFAR); globally, some 6.6 million people have access to HIV treatment out of an estimated 15 million who need it.

The pledge, however, does not come with an increase in PEPFAR funding from the US$48 billion pledged in 2008 for five years.

“We are looking at smarter programming and greater efficiencies, and costs are also coming down,” said Michael Strong, country coordinator for PEPFAR in Uganda. “We will continue existing programs and increase the number of people on ARVs to six million.”

Strong noted that the U.S. was also working to persuade other countries to take greater responsibility in the fight against HIV. “China, for instance, should not be a recipient of donor funds for HIV – it is the world’s second-largest economy,” he said. “We are urging rich countries like Germany and Sweden to commit fully to efforts to fight AIDS.”

Obama said the U.S. would also provide ARVs to prevent mother-to-child HIV transmission to 1.5 million women, support 4.7 million male circumcisions in eastern and southern Africa, and fund the distribution of at least one billion male condoms.

“HPTN 052 [a large randomized controlled study that showed the effectiveness of ARVs as prevention] showed that treatment not only saves lives, but slashes rates of infection; Obama has shown that he is willing to take action on the basis of that science,” Russell added.

The news comes as a relief for those involved in the fight against HIV, which is severely underfunded and recently suffered an additional blow when the Global Fund to fight AIDS, Tuberculosis and Malaria was forced to cancel its 11th round of funding due to insufficient resources. Activists have called on donor countries to follow Obama’s lead in ensuring treatment is made available for all those in need.

“We are calling for an emergency donor conference within the next 200 days as an opportunity for donors to raise at least US$2 billion towards meeting the costs of treatment,” said Tido von Schoen-Angerer, executive director of the Médecins Sans Frontières (MSF) Access Campaign. “It is very frustrating that we have had such a year of scientific achievement in terms of understanding how to have real impact and possibly end the epidemic, but at the same time funding is running out and we risk going backwards in the fight against HIV.”

Cautious optimism

Obama’s announcement on 1 December, World AIDS Day, was welcomed with cautious optimism in developing countries. “If the pledge is kept, it will be an important step in the global goal of getting 15 million people on treatment by 2015, but it is important to realize that we are not out of the woods yet, unless the rich countries of the north keep their pledges to the Global Fund… because this is the biggest source of funding for many poor countries,” said Nelson Otuoma, national coordinator of the Network of People Living with HIV/AIDS in Kenya (NEPHAK).

Health GAP’s Russell cautioned that high-burden countries would need to play their part in ensuring donor funds were used in the most effective way; in particular, countries such as Uganda – the only PEPFAR-funded country where new HIV infections are on the rise – would need to become more aggressive in using effective prevention technologies and scaled-up treatment programs to show results.

“It will be vital for high-burden countries to step up and match Obama’s commitment with money, leadership and accountability,” she said.

kr/ko/mw

– Provided by Integrated Regional Information Networks.

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Kabul, Afghanistan (AHN) – Friday marks the 10th year of the U.S.-led war in Afghanistan. The milestone will pass quietly. There was little observance by U.S. troops still in Afghanistan who just weeks earlier celebrated the 10th anniversary of 9/11.

There is not much to celebrate or commemorate. More than 2,700 troops from the United States and its partners have died during the 10 years of war, according to a CNN count. Of those, 1,780 were American.

During the decade-long war, two landmark events occurred. The Taliban has been forced out of power and Osama bin Laden was killed by U.S. Navy Seals.

Since the conflict began, the number of casualties has risen every year with a significant increase from 2008 to 2009. At least 296 coalition troops died in 2008. The number nearly doubled to 517 in 2009, the year President Obama authorized a surge of 33,000 U.S. forces to Afghanistan to combat the violence.

In 2011, plans were outlined to withdraw U.S. troops from Afghanistan, beginning with pulling the 33,000 surge troops out by the end of 2012, and the remaining 68,000 by the end of 2014. The move was followed by withdrawal announcements by most NATO nations.

The Afghanistan war was once viewed as a necessity by a majority of Americans. It has now become widely unpopular as U.S. concerns have turned to the ailing economy and high unemployment. And many in Afghanistan are equally disappointed, saying they don’t see any changes in their country.

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Washington, D.C., United States (AHN) – The New York Stock Exchange closed up but the Nasdaq was down Thursday as fears continue that the European debt crisis is getting out of control.

A default among major European countries is likely to drag down the U.S. economy too, possibly into another recession, according to economists.

The risk to the U.S. economy is bringing warnings from President Barack Obama and becoming part of the campaign rhetoric of his opponents in the 2012 presidential race.

Obama said during a cross-country tour this week to promote his job creation proposals that Europe’s debt crisis is “scaring the world.”

He is urging European leaders to move quickly to resolve their debt problems.

He blamed setbacks this year for the U.S. recovery on international turmoil, such as European debt and Arab Spring uprisings that drove up oil prices.

Europe’s biggest unknown is Greece, where the government is seeking a bailout from the European Union as its debt rises.

The 17 member nations are considering enlarging the European Financial Stability Facility, a fund that would provide bailout loans and financial incentives when any one of the Union’s economies stumbles.

Finland voted this week to enlarge the fund, which would require each European Union country to contribute more money.

However, all of the member countries must approve the proposal before the fund could be enlarged.

“They have not fully healed from the crisis back in 2007 and never fully dealt with all the challenges that their banking system faced,” Obama said during a speech in Mountain View, Calif. “It is now being compounded with what is happening in Greece.”

China joined the United States during a recent International Monetary Fund meeting to encourage the European Union to control its debt crisis.

“So they are going through a financial crisis that is scaring the world and they are trying to take responsible actions but those actions haven’t been quite as quick as they need to be,” Obama said.

The United States exports about $240 billion in goods to Europe each year but imports about $320 billion.

Many of the jobs in Obama’s $447 billion job creation proposal depend on a strong import-export market with Europe.

With unemployment stuck at around 9.2 percent, Obama wants to raise taxes on the wealthy and give tax breaks to employers who hire more workers.

“The income of folks at the top has gone up exponentially over the last couple of decades while the incomes of the middle class have flat lined over the last 15 years,” Obama said.

Republican presidential candidates, such as Rick Perry and Mitt Romney, are skeptical of Obama’s proposal because of the tax increase for the highest income earners. They say it would hurt job creation.

Economists are saying saving the U.S. economy could depend heavily on what European leaders decide in the next few days.

Before they can take decisive action, European leaders must reach agreement.

However, leaders from the most economically powerful countries – such as Germany – risk losing popular support if they make too many concessions to help out weaker neighbor nations, according to economists.

Meanwhile, as the euro loses value on international markets, American investments in Europe are weakening.

Their business losses eventually could mean fewer American jobs.

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Washington, D.C., United States (AHN) – The threat to the United States from Mexican drug cartels is increasing as they evolve into a wider variety of crimes, witnesses at a congressional hearing said Tuesday.

The House Foreign Affairs Committee held the hearing to consider new strategies against drug cartels as the three-year Merida Initiative expires this year.

The initiative is a treaty signed by the United States and Mexico to combat drug cartels. The U.S. government agreed to contribute $1.5 billion toward the effort.

“We need to re-address what it is we want to accomplish,” said Rep. Connie Mack (R-Fla.), chairman of the House Foreign Affairs Committee.

Mexico’s war against drug cartels started in December 2006, when Mexican President Felipe Calderon ordered troops to help police fight the gangs.

About 40,000 people have been killed in the drug war. The worst violence has been reported in Ciudad Juarez, just across a bridge from El Paso, Texas.

Calderon said the cartels threatened Mexico’s self-rule by bribing, intimidating or killing government officials and police.

Some of the same concerns were raised Tuesday during the Foreign Affairs Committee hearing.

Mack called the drug cartel violence “a well-funded criminal insurgency raging along our southern border, threatening the lives of U.S. citizens and harming the U.S. economy by undermining legal business.”

He proposes a comprehensive U.S. effort against the cartels that combines efforts of the Treasury Department, Drug Enforcement Agency, Central Intelligence Agency, Immigration and Customs Enforcement and State Department.

He also wants to double the number of Border Patrol agents along the Mexican border.

Witnesses from among the academic institutions and public policy organizations said Mexico’s judicial system needs to be strengthened against gang influence.

“Their wealth gives them the power to corrupt public officials and potentially influence election outcomes,” Pamela K. Starr, director of the U.S.-Mexico Network said in her testimony.

The State Department has been working on a strategy that would shift more U.S. government aid to police in Mexico’s northern states, which are crisscrossed with drug smuggling routes.

William Brownfield, an assistant secretary of State who oversees illegal drug issues, has been meeting with federal, state and local law enforcement personnel in Mexico in recent days to discuss new counter-insurgency strategies.

Brownfield called the drug cartels “transnational organizations” that Mexico cannot stop by itself. He spoke during a press conference in Mexico City last week.

Until now, much of the U.S. government Merida Initiative money has been dedicated to equipping and training the Mexican military.

However, some U.S. diplomats say funding and military equipment is hard to trace to successful efforts against drug cartels. The equipment has included military helicopters and surveillance devices.

Aid to Mexico’s northern border police would be more effective in preventing drug and arms smuggling, Brownfield said.

“This is where most of the cartels have focused their activities,” Brownfield said.

A stepped-up pace of U.S. government assistance also is creating controversy in Mexico, where some politicians express concerns publicly that their sovereignty is threatened.

The complaints reached a crescendo this summer amid media reports about Operation Fast and Furious.

The more than year-long operation by the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives involved allowing smugglers to take guns illegally into Mexico so they could be traced to drug lords.

However, Mexican police say the guns also were traced to at least 170 violent crimes in Mexico, including murders. Politicians on both sides of the border said the law enforcement operation was irresponsible.

U.S. Deputy Secretary of State William J. Burns tried to address the Mexicans’ concerns about being squelched by their northern neighbor during a press conference last week in Mexico City.

“We do not engage in law enforcement activities,” Burns said. “What we do is to help, consistent with the wishes of the Mexican authorities… So we take a very practical approach, but we follow the lead of the Mexican authorities and try to provide the support that they need most and that contributes most to our common cause.”

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Washington, D.C., United States (AHN) – There was a recovery in the stock market with indicators closing on a slightly higher level after dipping earlier as Federal Reserve Ben Bernanke on Friday reiterated his views that the next round of efforts to goad the economy on track are now out of the purview of the Fed.

Addressing a select audience at the Kansas City Federal Reserve Bank’s annual Jackson Hole, Wyoming, conference Bernanke urged Congress and the Obama Administration to work on the next steps to keep the ongoing feeble recovery on track and not let the recession take over.

Bernanke criticized U.S. lawmakers not only for their failure to do needful to generate jobs but also for their political bickering over the debt limit in the recent times.

Mincing no words, the Fed Chairman cautioned the lawmakers, “The negotiations that took place over the summer disrupted financial markets and probably the economy as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses.”

“Although the issue of fiscal sustainability must urgently be addressed, fiscal policy makers should not, as a consequence, disregard the fragility of the current economic recovery,” Bernanke said.

“Acting now to put in place a credible plan for reducing future deficits over the longer term, while being attentive to the implications of fiscal choices for the recovery in the near term, can help serve both objectives,” suggested Bernanke.

On the range of possible measures the Fed can take, Bernanke said, “The Federal Reserve has a range of tools that could be used to provide additional monetary stimulus.”

Referring to the Federal Open Market Committee (FOMC) meeting next month, the Fed Chair said, “We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September.”

“The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability,” hoped the Fed Chair.

Citing that the U.S. “economy is suffering today from an extraordinarily high level of long-term unemployment, with nearly half of the unemployed having been out of work for more than six months,” Bernanke said, “policies that promote a stronger recovery in the near term may serve longer-term objectives as well.”

For the short term, Bernanke suggested, “putting people back to work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow.”

“In the longer term, minimizing the duration of unemployment supports a healthy economy by avoiding some of the erosion of skills and loss of attachment to the labor force,” the Fed Chair said.

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Manila, Metro Manila, Philippines (AHN) – Philippine Finance Secretary Cesar Purisima warned that the Standard & Poor’s downgrade of the U.S. credit rating would have an impact on the country’s financial markets.

Purisima said the cut would likely result in dampening of overall appetite of fund owners to invest in the U.S., which would still affect developing nations.

The tentativeness of investors may slow down the global economy, he said.

Purisima added that unless Washington addresses the U.S.’s fundamental issues, the international community may have entered a period of less predictable and less stable global financial markets.

He said another impact of the S&P downgrade is on the Philippines’ foreign exchange reserves which are denominated in the American greenback and invested mostly in U.S. Treasuries.

Philippine Central Bank Governor Amando Tetangco Jr. said the one-notch downgrade may not lead to a sell-off of U.S. treasuries because the new rating of AA plus is still investment grade. Tetangco said that while it is a prudent investment strategy to diversify, the greenback and U.S. Treasuries are still the most liquid assets.

In preparation for a nervous opening of the financial markets on Monday after the S&P downgrade, European Central Bank President Jean-Clause Trichet convened a late Sunday afternoon call with the heads of the continent’s national central banks.

New French Finance Minister Francois Baroin questioned the rating cut, citing Washington’s dispute of the judgment because the rating agency allegedly overstated the U.S. federal debt by $2 trillion.

Chiefs of state are also discussing the downgrade, particularly between French President Nicolas Sarkozy and British Prime Minister David Cameron, and Italian Prime Minister Silvio Berluconi and U.S. President Barack Obama, who also discussed the downgrade on Friday with German Chancellor Angela Merkel.

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