Egypt and Turkey, whose economies and history have a lot in common, have become political adversaries over the last few years, with Turkey having thrown its support behind the unpopular government of Mohammed Morsi, whom Egypt’s army subsequently removed in 2013.
How do their economies compare?
The two countries have marvellous histories. Both ruled great empires. Turkish was the language spoken by Egypt’s rulers for a good part of the last thousand years. Turkey’s population is about 80 million; Egypt’s is 90 million. Both sit astride two continents separated by major world sea lanes that host a good chunk of world trade.
Both have had constant economic crises over the last few decades, and both have had to call on the IMF repeatedly to extinguish financial fires.
The nature of their crises has been broadly the same: an overvalued currency and huge budget deficits that the governments financed by selling treasury bills and bonds to local banks, crowding out private borrowers. Both economies in recent decades have relied heavily on tourism, which in the last few years has collapsed in both.
Turkey’s crises and recoveries are generally more dramatic than Egypt’s. One of the bigger Turkish economic disasters took place in the 1990s, when the government resorted to printing money to finance its enormous budget deficits. This stoked inflation that rose to an annual 99 per cent in 1997 – not quite hyperinflation, but close. In 1999 the economy contracted by 3.4 per cent. One dollar fetched 1.5 million lira.
Then in December 1999 Ankara signed a US$4 billion, three-year standby agreement with the IMF to get the crisis under control. It was the standard IMF medicine of cutting the budget deficit and lots of structural reforms, including in the banking sector, social security and agriculture. A privatisation programme was launched and a gradual devaluation was announced. In 2000, GDP grew by 6.8 per cent.
But within a year, a bank was forced to sell part of its portfolio of government securities, sparking a panic in the market. This forced the government to abandon its gradual devaluation and to let the currency float. The government signed a second agreement with the IMF, this time for $8bn.
Just when it seemed the programme was beginning to bear fruit, the World Trade Centre in New York was attacked on September 11, 2001, causing yet another panic. Turkey’s GDP fell by 5.7 per cent that year. The government went for a third agreement with the IMF, this time for $16bn. More state enterprises were sold, the currency float continued, the banks were restructured and government employment was streamlined.
The economic recovery programme was designed by a star finance minister, Kemal Dervis. Inflation, which was 68.53 per cent in 2001, fell to 29.75 per cent in 2002 and 12.71 per cent in 2003.
In the meantime, the country scheduled a general election. Recep Tayyip Erdogan’s AK Party came out strongly against the IMF agreement in its campaign. The AK Party won only 34 per cent of the vote, but because most of the other parties did not meet Turkey’s minimum threshold of 10 per cent of the vote to send members to parliament, the AKP collected about two-thirds of the seats in parliament.
Once in power, the AKP implemented the IMF accords strictly. Its predecessor did all the heavy lifting, but the AKP reaped the rewards. Over the next six or seven years, the economy boomed. In 2002 GDP growth jumped to 6.2 per cent, and in 2004 it surged to as high as 9.4 per cent.
Egypt, in the meantime, was going through its own crisis, which started at about the same time as Turkey’s. It was brought on by the Asia financial crisis, a collapse in the price of oil and the November 1997 massacre of dozens of foreign tourists in Luxor, aggravated by leaving its currency way overvalued.
Unlike Turkey, Egypt waited another two or three years before moving to solve its crisis. But when it did with the arrival of the government of Ahmed Nazif in June 2004, the results were remarkable. GDP grew by as much as 7.2 per cent in 2007-08.
The two neighbours are at odds with one another, but with remarkably similar turbulent financial histories – and in both cases, with no clear path to long-term economic stability.
Patrick Werr has worked as a financial writer in Egypt for 27 years
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