After a punch split his lip and sent blood trickling down his chin, Mustafa Badawi whipped out a knife and slashed at his opponent.
The glint of the blade and the yells from the narrow street of a Cairo slum drew dozens to the brawl, their feet kicking up dust as they rushed to stop a dispute over a debt of about $8 from escalating into murder.
“Where am I supposed to get the money from?” Badawi cried as he was wrestled to the ground. The funds had been borrowed to buy food and repay other debts from a neighbor. “If you want your money, then take it in blood. That’s all I have.” Behind him, candidates from Egypt’s presidential election gazed out from campaign posters lining the street.
In the 15 months since President Hosni Mubarak’s ouster, Egypt’s worst economic slowdown in decades is testing the faith of those facing the greatest hardship as the Arab world’s most populous nation starts its first free vote for a head of state on May 23. Final results may not be known until June 21.
With most Egyptians seeing the economy as the nation’s top priority, according to a Pew Research Center survey, authorities must balance investor demands with the needs of the poor who make up about 40 percent of the population. Failure risks reigniting unrest, deepening the woes that make the country one of the 10 most likely to default, said Wael Ziada, head of research at EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank.
‘Given Up Hope’
The rift between rich and poor that had narrowed after the January 2011 uprising has started to widen again. While about two-thirds of the richest are satisfied with Egypt’s direction, only 42 percent of the lowest earners share that view, according to the May 8 Pew poll. The two groups were equally optimistic after Mubarak’s departure.
“This is a dangerous period,” said Mahmoud El-Askalany, head of consumer-rights group Egyptians Against High Prices. “The poor have given up hope on the political process.”
Two of every five Egyptians live on less than $2 a day and it’s people like Badawi who would bear the brunt of short-term inflationary pressures brought about by policies to restore confidence and attract investors.
“You need subsidy restructuring, currency restructuring and some restructuring of the financial system -- unfortunately this will lead to inflation,” Ziada said.
The International Monetary Fund says that Egypt may end up with the fastest inflation and slowest growth this year among countries in the Middle East with traded foreign debt.
Egypt is also under pressure to devalue the currency after international reserves were depleted by about 60 percent to $15.2 billion, the lowest since 2004.
London-based Silk Invest Ltd. has said it stopped buying Egypt’s local-currency debt on concerns about a possible devaluation. The pound, subject to managed float, has lost 3.8 percent since the start of last year. Currency forwards show investors expect it will weaken by 20 percent in a year.
The world’s largest wheat importer last devalued the currency in 2003 after a drop in reserves prompted authorities to impose restrictions on foreign-currency withdrawals. The inflation rate more than doubled the next year to 8 percent.
Concerns about rising consumer prices have some wealthy Egyptians taking steps to shield their savings.
Mohamed Roushdy, the 37-year-old founder of Bullion Rosche, a Cairo-based company that sells gold and silver bars, said demand is so high he plans to hire 25 people for marketing, which is now handled by him and an associate. He’s targeting people with savings of 30,000 Egyptian pounds ($4,969) to 100,000 Egyptian pounds. Ahmed Amin, a 33-year-old oncologist, said he’s converting his assets to dollars.
“When everything around you gets shaken, you look for security,” Roushdy said.
Wrangling between Islamists who dominate parliament and the country’s military rulers over the constitution, the election law and other issues have stymied economic policy and undermined efforts to secure a $3.2 billion IMF loan.
“The people aren’t going to eat the election law, freedom or democracy,” El-Askalany said.
Foreign investors are already punishing Egypt for indecision on the economy. The cost of insuring the country’s debt against default surged 37 basis points, or 0.37 percentage point today to 647, the highest level since January, according to data provider CMA, extending their advance since the start of last year to 402 basis points, the data show. Egypt’s credit worthiness was lowered four times at Moody’s Investors Service to B2, five levels below investment grade.
The rating company said in April it has extended its review of another possible cut pending the outcome of the presidential election and the country’s talks with the IMF.
Underscoring the urgency for the next government are near-daily protests over issues such as fuel shortages and public sector wages. Increased hardships for the poor will create a backlash against the emergent political parties, said Ahmed Maher, a founder of the April 6 movement, a youth group that helped organize the initial anti-Mubarak protests.
“This is going to come down on their heads,” he said.
El-Askalany, the head of the consumer rights group, had predicted in mid-2010, months before the start of the uprising, that there was a “hunger revolution” brewing. “Not much has changed now,” he said.
Food a Luxury
Manal Abdel-Meguid, a 37-year-old housekeeper and mother of three, says grocery items that cost her 300 pounds a month before the uprising now cost her 30 percent more. Food prices rose at an annual rate of 10.8 percent in April, according to the statistics agency. Chicken prices climbed 28 percent in the five months through April, according to the central bank.
“It’s getting to the point that food is becoming a luxury,” she said outside a Cairo market.
Candidates are pledging to protect the poor. Amre Moussa, a former foreign minister who leads opinion polls, is campaigning on a promise to lure enough external financing to boost investments, create jobs and avert a devaluation.
The Islamist Freedom and Justice Party, which is fielding Mohamed Mursi as a candidate, wants to change subsidies so that the poor benefit more directly and others pay market rates. Mursi launched his candidacy by promising to help mothers who can’t afford medication.
Ahmed Shafik, Mubarak’s last prime minister, smiles from billboards totting the slogan: “Action, not words.” Many Egyptians see these pledges are little more than hollow promises.
“No one helps us,” said Badawi, the 25-year-old unemployed artisan’s apprentice, as he was led away by a group of men after the fight. “They talk and fight, and we starve. This is all we got from this revolution,” he said, pointing to campaign posters.