Over the last two decades, various countries around the globe experienced financial and economic crises with differing intensities. Some of these crises were mainly due to economic and financial factors. Others started as political conflicts and then dramatically affected the overall macroeconomic and fiscal status. Whatever the reason behind any given crisis, its management was often influenced by politics. The solutions adopted to deal these crises were reached through political processes, within which the main political actors agree on framing discourses of political economy in addition to economic and fiscal issues, and political factors such as lack of accountability, corruption, and political turmoil. Bulgaria experienced an economic crisis that persisted from 1997 to 2000. Politics was the main driver of the crisis. Not only did the loss of the Soviet market enhance the crisis, but also the collapse of the Comecon system increased its intensity. In addition, the Bulgarian Socialist Party's inefficient economic policies under Prime Minister Zhan Videnov, as well as sanctions imposed on strong trade partners, made the situation worse. All the above resulted in an economic and financial crisis where bank performances deteriorated, standards of living fell heavily, and inflation rose. After political turmoil, Bulgaria recovered through a political process in 2000 with the aid of the World Bank and International Monetary Fund (IMF) that helped liberalise trade, reform the agricultural and energy sector, improve social safety net programmes, improve the tax system, encourage privatisation of specific state-owned enterprises, and improve accountability and monitoring methods. Turkey, in 2001, had to face a severe financial crisis when interest rates climbed up, liquidity went down and foreign investors took their money out. This happened due to the overvalued Turkish Lira, current account and bank sector deficits, and unavailability of capital. Political factors, such as the conflict between President Ahmed Necdet Sezer and Prime Minister Bulent Ecevit, were said to be the cause of the crisis as well as inefficient economic policies. In response to the crisis, the Central Bank of Turkey sold some of its foreign exchange reserves, allowed the Turkish Lira to free float, and tried to restore credibility to its system through the appointment of a new economic minister and Central Bank governor. These new political appointments were fully supported and accompanied by the IMF as a new economic stabilisation system was adopted. Brazil, Argentina and Uruguay are examples of South American countries that experienced an interrelated economic crisis in 2002. The main reasons were both political and economic. Deficit and increasing debt in addition to declining GDP growth pushed the Argentinian government to fix the exchange rate to the US dollar. However, as Brazil, its largest trading partner and neighbour, devaluated its currency as it witnessed a sharp rise in sovereign bonds, Argentina could not keep up with the devaluation. Consequently, its goods were less competitive when compared to Brazilian exports making Argentina worse off. Moreover, Uruguay was also affected as not only does it over depend on Argentina, but also many depositors took away their money from its banks, leading to a severe banking crisis. Brazil witnessed a change of governments that helped increase the country's risk. Moreover, it implemented an IMF reform package that included pre-commitments to ensure its success. Argentina followed a similar scenario, also witnessing a change of government and a restrictive loan from the IMF. This new government encouraged import substitution, reformed credit terms for investors, improved welfare, and enhanced the tax collection system. The currency revaluated mainly due to the trade surplus from agriculture and tourism. For Uruguay, it at first stopped all banking activities and then started to recover in 2003 through growth led by private consumption. On the other hand, some countries experienced crisis purely because of economic reasons, such as inefficient policies, and weak and extractive institutions. Bolivia, an Eastern Europe country, faced a financial crisis in 1998 that persisted until 2004 mainly due to consumer-credit micro-finance organisations. Micro-finance is a large sum of the Bolivian economy. Not only have these organisations miscalculated risks associated with lending, but they have also given too many loans. Consequently, the performance of banks deteriorated heavily. To help solve this, insurance and quasi-insurance institutions were established to help encourage poor clients to invest, and savings were mobilised through taking advantage of prudential restrictions on NGOs. Colombia, in 1999, witnessed an economic crisis as its economy shrunk, the exchange rate regime collapsed, and unemployment levels rose. The main stimulus for the crisis was a period of financial stress caused by banks as their loans quality deteriorated, leading them to give out too many loans. To help end this crisis, interest rates were raised very high, the government devaluated the Colombian currency and later left it to float. Moreover, it agreed to borrow from the IMF with the condition of having the government better manage its budget, adopt structural reforms to its financial sector and its economy. In addition, Colombia focused on improving its exports. Most recently, the European Union have been experiencing a sovereign debt crisis that started in 2009 when concerns regarding EU debt levels were first made, breaking into a crisis in 2011. Greece was the worst performer with debt amounting to 113 per cent of GDP. Moreover, debt levels kept increasing as time passed. This was mainly a result of the government's heavy spending, low revenues, high tax evasion, structural rigidities, and a lack of intra-Euro fiscal monitoring. Greece has received a bailout package by the IMF, implementing austerity measures to reduce fiscal imbalances, privatising government assets, and other structural reforms stipulated as conditions for the loan. However, the crisis kept deepening for Greece. In response, some Eurozone countries agreed to offer another bailout loan for the country. This loan was also conditional and coincided with the IMF package. Yet it had one more condition of having private creditors of Greek government bonds agree to accept lower interest rates. Greece was not following its repayment schedule and problems in forming new government made this more intense. Portugal is another country involved in the crisis as of 2010. Government high expenditure, an investment bubble, and bank failures were reasons of high debt levels. The government first started managing the crisis through applying austerity measures, by cutting salaries and increasing taxes. Yet this failed to be effective, pushing Portugal to receive a bailout loan from the EU and IMF, which encouraged further austerity measures, increasing privatisation, and reducing the budget deficit. This situation had its impact on the political context and fuelled the conflict among political parties and labour unions. The abovementioned experiences provide important lessons for Egypt. First, there is no valid solution to any crisis without a political deal. This deal should be finalised with the main political powers and social and professional movements in the country. This deal is crucial not only for agreeing on a fiscal and economic reform package, but also for having society united to bear the consequences of this package. Second, although most of the crises above resulted from fiscal, monetary and banking factors, the reforms adopted had to be core economic and social reforms. Handling crises just through fiscal and monetary interventions does not provide any solid guarantee of long term and stable solutions. Third, relying on international organisations, like the IMF or the European Union, should be one of the approaches adopted by the country, not the only approach. The country's economic and social policies should not be formulated in a way that merely satisfies the conditions of international organisations. Approaching international society for support should be an instrument within a comprehensive reform programme, not an end in itself. Finally, at critical times in a country's history, political leadership should be innovative, bold, and progressive and think out of the traditional box.
The writer is associate professor in the School of Economics and Political Science, Cairo University.
