Crisis Hits Egypt Where it Hurts: Trade, Tourism and Tolls : Economics: As refugee workers return home, Cairo loses its biggest source of foreign currency. Travel bookings drop, as does Suez Canal shipping.


Drivers honked furiously at the crowd in the street, and security police officers brandished their batons as the men tried to shove their way into the El Rafideen Bank.

Hundreds of Egyptian farm workers, day laborers and craftsmen just back from Iraq were trying desperately to withdraw the dollars they had earned working there.

But for most of them, because of currency controls, the hours of waiting in the sun would be futile. One man, Mahmoud Soliman, said that in the last three months, he has made four trips into Cairo from his village 100 miles away in an effort to withdraw the $880 he saved making rugs in Iraq.

“I’ve never gotten any of it,” he said Tuesday. “I don’t have a job, and I’ve borrowed money. I have to pay it back.”


Iraq’s reluctance to part with dollars is one reason these unemployed workers support the Egyptian government’s decision to oppose Iraqi President Saddam Hussein’s Aug. 2 invasion of Kuwait.

But the growing lines of workers also illustrate the cost of the Persian Gulf crisis for Egypt: the damage it is doing to Egypt’s already feeble economy.

Egyptian workers abroad, in Iraq, Kuwait and Saudi Arabia, sent home an estimated $3.5 billion last year. Their remittances constituted the largest single source of foreign currency in a country perpetually strapped for cash to meet payments on its $45-billion foreign debt.

Now, because of Iraq’s invasion of Kuwait and the crisis it has caused, hundreds of thousands of those workers are expected to come home. The loss in foreign currency, officials here say, could be more than $1 billion a year.


Tourism, Egypt’s No. 2 source of foreign currency, is also affected by the crisis. Although the Persian Gulf area is relatively distant, trouble anywhere in the Middle East takes a toll on the entire region. Hotel operators and others in the tourism industry report that business has dropped 30% to 40% since the crisis began.

“There are no new bookings for November and December,” a Western economist said. He said Egypt stands to lose $500 million to $800 million in tourist revenue.

Egypt’s No. 3 source of foreign exchange involves the tolls it collects from ships passing through the Suez Canal. This revenue is off, too, down 25% this month compared to August, 1989. Much of the decline is attributed to the absence of tankers carrying Kuwaiti and Iraqi crude oil, which has been embargoed by the United Nations.

Some of these losses may be offset by higher oil prices. Egypt pumps 850,000 barrels per day, which generated about $1 billion in revenue last year. The figure could increase significantly if oil prices stay high.


But another Western economist cautioned that the real effect of higher oil prices will depend on “how far they rise and how long they stay up.”

In any case, the net result of the gulf crisis is bad news for Egypt’s economy, he said, and added: “The economy has been in difficulty for some time. On balance, the impact of the crisis will increase those difficulties.”

The looming dollar shortage not only will put pressure on the government to devalue the Egyptian pound; it also raises serious doubts about Egypt’s ability to meet its foreign debt payments. Even before the crisis, the economist said, government officials “just barely managed to keep their heads above water” on debt payments. “It was a perpetual cliff-hanger,” he said.

About $12 billion of Egypt’s $45-billion foreign debt is owed to the U.S. government; payments due to the United States this year total $948 million.


Egypt is the second-largest recipient of U.S. foreign aid; only Israel receives more. But under U.S. law, military and economic assistance must be suspended to any country that falls more than a year behind in debt payments. And even before the crisis, Egypt was running nearly a year behind.

President Hosni Mubarak has called on the United States and other countries to forgive part of Egypt’s debt. Now, in light of the crisis, this appeal to the United States, and to Kuwait and other oil-rich countries, is expected to be given new emphasis.

Despite the strong position Egypt has taken in support of U.S. policy against Iraq--Egypt led a move to send a pan-Arab military force to stand alongside U.S. troops in Saudi Arabia--Mubarak’s plea for debt relief is not likely to fall on friendly ears in Washington.

The U.S. Congress has been searching for ways to cut foreign aid and has considered reducing aid to traditional recipients in order to meet the growing needs of Eastern Europe.


For more than two years, Egypt has been negotiating an economic reform program with the International Monetary Fund that would allow it to renegotiate its debt payment schedule. So far, it has not been successful, largely because of a high budget deficit, low interest rates and unfavorable currency-exchange rates.

The Egyptian economy has gone through many reforms in recent years, but nearly a third of the labor force still works for the government. The state subsidizes some basic foods and controls prices on others.

Assem Abdel-Haq, the minister of manpower and training, said that many of the Egyptians working abroad, particularly in Kuwait, had left government jobs and that about 100,000 of them can expect to get their old jobs back.

He said 150,000 Egyptians, many of them skilled workers, are in Kuwait. He added that the government knows of 850,000 workers in Iraq, mostly unskilled, but some analysts put the figure at more than 1 million.


“No doubt after the Iraqi aggression in Kuwait, the Egyptians will return,” Abdel-Haq said. “We don’t know when this problem will be solved.”

Some observers expect the Iraqi government to offer the Egyptians incentives to stay, particularly as more and more Iraqis are taken into the army. But tens of thousand have returned already.

No one knows for certain what the full impact will be as so many men and women suddenly come home and start looking for work. Officially, unemployment was 8.6% before the crisis.

At the very least, the return of the workers is likely to depress wages. Some observers and officials fear it could lead to social unrest.


However, government officials and Western analysts argue that there is a huge safety net in Egypt: the extended family, which looks after its members, and an informal economy in which people can find occasional work.

“Everyone is always predicting that Egypt will go up in flames, and it never does,” a Western economist said.