The cost of vengeance

The terrorists who struck last Tuesday haven't just bloodied America. They have put the whole world in danger of catastrophic recession. Jasper Thornton writes
Joe Ledward is a regular American. He owns a trucking company in Washington, serving business, retail, home-movers. He dotes on his two kids. His wife is from up-state; they met in college. Ledward votes Republican; he likes Mexican food.
Then the World Trade Center fell, and everything changed. Ledward, and millions of Americans, watched innocent office-workers hurling themselves from windows fuming with smoke, crumpling on to concrete sidewalks hundreds of feet down. "I've never been so angry," Ledward said to a news wire. "Today, I am angry. They were so... helpless. They should be avenged."
Ledward's deep distress, and that of millions of Americans like him, will make the economic future of this region.
Hisham Fahmi, executive director of the American Chamber of Commerce in Egypt, laid out the issue to Al-Ahram Weekly. "Firstly, there is the 'wait and see' period, when everyone waits to see what the US does. That period will affect trade and tourism; it costs just as much as anything. Then there is the second period. How will the US respond? How close will that action be to the region? To predict is impossible. But military action could easily push the US and the world into recession. And we won't be immune." Just under 90 per cent of Americans favour military action, according to a CNN poll of Monday. Ledward's distress, and the US perception that it is at war, may cost the world dear.
The effects of the "wait and see" period are with us already. The day of the attack, the oil price spiked at $31 a barrel; OPEC usually keeps it within a range of $22-28. The London FTSE index fell six per cent, its biggest ever one-day fall. The top 100 companies lost $70 billion in value. Before trading was suspended in the US, the Dow Jones index had collapsed. No one knows for sure if this will last. But Credit Suisse First Boston, a US investment bank, thinks the US economy may contract by 0.8 per cent in the third and fourth quarters of this year, simply from the slowing of the economies of New York and Washington. Commentators also noted that, during the Gulf War, perhaps the most comparable occasion, consumer confidence, currently the main motor of US growth, plummeted. Central bankers in the US and Europe stand ready with $80 billion in cash to grease the wheels of daily transactions, if nervous consumers decide to liquidate their assets. They are worried the US will fall into recession, and take the world with it.
Egypt suffered a liquidity crisis recently: it spent half its dollar reserve during the crisis, leaving less for troubled times ahead. It is too early to tell the total impact of the terror on Egyptian stocks, Seif Fikri, a trader with EFG-Hermes, told the Weekly, "because many cash settlements go through New York financial centres," many of which were closed until Monday. But Fikri and his colleagues, and investors in Egyptian companies, will have a tortured time watching the indicators this week.
Some analysts are overwhelmingly gloomy. A banker in Egypt, who preferred not to be named, told the Weekly, "there will certainly be capital flight from the region," laming all kinds of business ventures. Egypt, Turkey and Israel are the countries in the region with the biggest external financing needs. "If capital flight does occur, they will be hobbled most," he said. Fahmi, though, is less alarmed. "Where will the money go?" he asked. "The US? Business there is just as at risk. Egypt specifically won't be affected, though of course we will suffer in a general economic malaise."
That malaise may trouble some of Egypt's biggest sectors: tourism and oil. Adel Zaki, owner of ITTA Tours, a travel agency dealing with various international markets, says his agency has witnessed several cancellations since last Tuesday, and "they are still happening." Zaki believes tourists don't fear Egypt, but air travel alarms them. "Travellers know Egypt is safe, but they are nervous of the US reaction. Travellers do not know who the US is going to hit; they do not know how the terrorists will react. It could be a long war against an unknown enemy. In these circumstances, why should a tourist risk travel abroad?" he asked.
Mounir Wissa, of Escapade Travel, believes the attacks will make the Middle East region specifically less attractive. "It will be the same as the outbreak of the Intifada, when the number of travellers to Egypt plummeted." he said.
Yet Egypt's tourist minister, Mamdouh El-Beltagui, stresses that there is still a steady flow of tourists to Egypt. "Tourist itineraries are being carried out in an ordinary way and in a hospitable atmosphere," he said. He added that figures for 8 to 15 September are good, and declared that Egypt will adopt safety measures at airports, ports, roads, hotels and tourist establishments.
Tourism contributed LE4.3 billion to the national income last year.
Tom Fyfe, vice-president of BP Egypt, was also reassuring. He told the Weekly: "We in the oil industry are determined that the immediate effects of this tragedy will trouble consumers. There is a keenness to maintain oil prices." But he advised the Weekly to watch for price announcements at the OPEC annual meeting on 25 September.
The general consensus is that during the "wait and see" period, tourism may suffer, but oil prices will stay stable. There may be capital flight from Egypt. The US may go into recession, coming at the same time as economic troubles in Japan and the EU -- a coincidence that has not happened since the 1930s. In that case all the world, not just Egypt, will suffer.
If the US takes action in the Middle East, on the other hand, as the Guardian put it, "all bets are off." When asked to consider the effects of possible US action, the Weekly's contacts were even less sanguine. Fahmi remarked that military action would definitely spike the oil price; Fyfe agreed that US mobilisation would lead to a massive demand surge. Mark Pabst, chief editor of Oil and Gas North Africa Magazine, added that the unpredictability of Iraq's behaviour makes any military adventures in the region economically perilous. And, although Iraq cannot afford to stopper production indefinitely, it could easily startle OPEC at key moments. Pabst commented: "If the US undertakes state-on-state action in the region, OPEC will no longer be in contro. Only a complete moron would bet on oil futures." And if the oil price catapults, "the US and the EU will definitely go into recession," he said. One bank report on the region, obtained by the Weekly, argued that the "less Middle Eastern" the terrorists turn out to be, the better for Egypt. But if they are connected to Palestine or Iraq, the results could be "severe."
There is no doubt that Egypt's businesspeople are nervous. A leading businessman told the Weekly that perceptions of the region as brimming with dangers and terrorists are a black mark in an already bursting negative ledger against foreign direct investment choosing Middle East business. Combined with the threats to oil and tourism, the region's economic prospects are sombre.
Beyond the initial effects of the tragedy, America's response, and how long it waits, matter, too. Anxiety is already high; prolonged uncertainty will worsen it. And when America's response comes, the consequences may be horrendous: for consumer confidence, tourism, and oil. Some may benefit: Mark Campbell, managing director of Centamin Egypt, a mining company, told the Weekly that "during nervous times people buy gold." Egypt is a gold producer. And some dismissed worries: Ma'moun Abdel-Fattah who negotiated at the WTO for 16 years, is sure that the world economic system is robust enough to absorb difficulties, though US deeds may change the picture. Generally, though, the outlook remains uncertain and worried. A spokesperson for the Ministry of Economy told the Weekly: "We must wait to see what the US does."
In the CNN poll that asked how supportive Americans were of a military response, 90 per cent favoured force; two thirds were prepared for a war of many years. Congressional aides are already talking of carpet bombing. Unless people's feelings cool, the US government will have to act -- forcefully. Until then, the economies of the Middle East will be waiting nervously on the feelings of Ledward, and other Americans like him.
Additional reporting by Rehab Saad
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