The Moorish Wanderer

Odd Ball

Posted in Dismal Economics, Flash News, Tiny bit of Politics by Zouhair ABH on February 8, 2011

The news from the financial markets are always funny to read: among many other things, one learns that for all the trouble the MENA region is heading to -or, for some countries there already experiencing it- the cost of insuring their sovereign debt is much lower compared to Greece. Incredible! Or is it?

Consider the following graph; I have to apologize for incomplete information, especially regarding the more recent levels of CDS on Greece, and for Egypt I had to crunch the missing numbers in order to get the current level. When one takes a careful look at these levels, and the way they evolve, there are many thoughts one could foster on the MENA region: Tunisia is a surprisingly low risk, when compared to Greece, or even to Egypt. The level of risk, captured via the CDS did certainly not justify the downgrading by Moody’s. Or if Moody’s did so, it has little to do with its political risk.

Cost Of Insuring Sovereign Debt CDS 2009-2011 (Datastream Reuters)

And for one, Leila Trabelsi was directly responsible for absconding 1.5 tons of gold bullion, which means € 45 Million, or $ 58 Million approximately. The sum might look like small beer, but when one keeps in mind the level of government debt Tunisia has -about $ 25 Billion- then it is obvious that annual payment can be endangered by that kind of blow; Not to mention the effect this has on the exchange rate the Central Bank Of Tunisia wants to sustain. There are other issues about the country’s sustainability in terms of economic growth, but it seems the downgrade was not, shall we say politically motivated, nor was it in reaction to market anxiety over developing events. And the market data shows it: the level of CDS remained remarkably stable, and for a troubled country, the financial markets do not seem to mind the difference with Morocco -as late as February 3th, CDS were slightly lower for Tunisia that Morocco’s-.

Why are Credit Default Swaps a good indicator for a sovereign debt? First, CDS are considered to be an insurance, mainly a guarantee against possible likelihood of default. In that sense, political instability, poor economic policies or unexpected low growth result can be indiscriminate factors in worsening CDS levels. In that sense, CDS are quite useful, but in the sense that they are signals: their prices are subject to demand and supply, and if their price goes up, it is a signal that, say for the Egyptian sovereign debt CDS to climb up to 400bps and counting, it means, first, that to insure $ 10 Million of Egyptian debt, an investor has to take on an insurance of $ 400.000. The signal is about expectations investors might have of the future. The more pessimistic they feel, the higher the price of CDS. And for the moment, levels of expected risk, in Tunisia or Morocco are very similar. Strange?

The same goes for Egypt: even though the country started from comparatively higher levels of risks (the higher CDS level, the higher the perceived default risk, markets-wise) they still operate at early 2009 levels, at which time Mubarak’s position was not particularly threatened – in fact, no one at the time would have bet a dime on successful demonstrations that we are witnessing today and since a fortnight. Again, a source in financial markets tell me that for all the media frenzy -and the local damage to the economy- foreign debt-holders are relaxed even with regime change, whether in Tunisia or Egypt, or other countries that might be on the waiting list. There remain countries like Morocco that were confirmed in their near-investment rating. At the time, and perhaps it might remain so, rating agencies do not see enough warning signals to downgrade the rating, perhaps because financial markets do not seem to mind the whiff of liberty in MENA.

In any case, the rumblings in the MENA region do not look harmful to the financial markets, as they rate Greek sovereign debt far more likely to default. this is good news for would-be protesters too worried they might compromise their country’s ‘good name’. It is also bad news for Greece, but ethnocentrism doesn’t involve me in feeling sympathetic to their miseries. I don’t know if I can stress enough the importance of these results: the MENA region has been experiencing, for many countries that is, sustainably high levels of growth, but the distribution effect has been marginal across countries. The current wave of public anger is not primarily motivated by political claims -this, in my opinion, comes with street protests- but rather by more redistributive policies. It seems financial markets, up to a point, do not mind that.

Who’s Next?

I did not get elected. That was expected, though I was disappointed I did not get enough votes for the MBAs. Never mind, perhaps next year, and a great thank you to those who supported me throughout. I will nonetheless continue in my folly, those who appreciate it can be assured of that.

Yesterday, late at night, after one too many Jack Daniel’s & Vodka shots (at a birthday party, mainly mingling about), I was staring at television, watching news from Egypt. I dare say it gets pretty hard to impress me, but the pictures of demonstrators on a tank (alive and joyfully chanting ‘Down With Mubarak !‘) took me aback. Drunkenness only just amplifies the sense of amazement that, if something is happening in Egypt, it might not be the same as the Tunisian uprising, it remains a historical day, and a memorable month.

Central Cairo. Demonstrations are genuinely popular and demand ousting Moubarak (Guardian Picture)

If dices keep rolling, the whole MENA region’s geopolitics might be profoundly altered: perhaps my analogy is wrong and misplaced, but it feels quite like the late 1980’s behind the iron curtain: the GDR, the most trustworthy ally to the Soviets, went down as the Berlin Wall was joyfully torn apart by enthusiastic demonstrators. In Poland, Czechoslovakia and Hungary, oppressive Stalinist regimes faded away like houses of cards. If the analogy is far-fetched, the symbolism of iron curtain can be considered to be relevant: in MENA, there is indeed an iron curtain, between the oppressed denizens and their rights, whatever basic they are, between the oppressed and squeezed poor-working classes and the apparatchik, greedy, rapacious cronies. An iron curtain between eternal, sometimes senile rulers and youthful, healthy ruled. In every sense of the word, there is a huge asymmetry between the body politics and the body citizens. Truly, we live in interesting times, and this is not a curse.

Humour me: is there is country where a part of the population desperately rallies behind the ruler, re-affirms its love and devotion for Him, and reiterates the line “we are different”? Hint: It’s most westerner one in North Africa. Moroccan policy-makers are watching carefully, and delivering even more careful statements, trying to anticipate what was already managed but was yet to get worse.

I think why I did not get enough votes for the MBAs. Perhaps I was too critical of the ruler(s) of the land. Perhaps I should have watered down with some lauding comments, or perhaps by expressing understanding sympathy to a Regal will for reform. Cheap lines, as it were, that, even in real life, are of little help: the policy-maker works better when facing opposition, and the more the latter is involved in real debate, enjoying a say on matters of state, then the very epitome of democracy are there for citizens to enjoy. In time of crisis, hurriedly rallying behind His Majesty looks at best sheepish, if not entirely lick-spittle behaviour. What, are all Moroccans -especially on the web- eager to show their monarchical sympathies like a badge of honour? Is there is some greema for every spine-less, herd-minded fool enough to change their profile picture on social networks, start posting fulsome praises to the King, and worse, stifle those questioning their sanity. That, dear readers, is a fit of panic. And with it, the shadows of doubt, indecisiveness begin to close on Morocco’s future.

The next Lego Ad, Perhaps?

It is true Morocco is different. This is such a tautology, considering that all countries are different one from the other when considered globally. Egypt was different from Tunisia, and yet there is an ongoing successful, large-scale protest against the incumbent ruler. What is meant by ‘difference’ is that the reasons why Egyptians, Tunisians and Yemenis took to the street differ, although there can be found some pattern, which can be found in Morocco too. Now, we should address two questions: is Morocco’s profile risk bound to deliver some large scale protests, and what is the ongoing reaction among officials.

First, Morocco shares common features with Tunisia and Egypt, and up to a point, these indicators are even worse concerning Morocco. Their respective economies grew at comparatively high rates, but failed to benefit all but a few members of oligarchy. While the three countries signed free-trade agreements with each other and with other major economies, they commit to free markets and limited state intervention, and yet the economic structures is either monopolistic (private monopolies, that is) or oligopolistic; Furthermore, there are numerous records of opaque relationships between some state officials -some quite close to the rulers’ inner circle- and the largest economic players. In a word, all these countries -and others in the region- are, as far as economics is concerned, crony capitalism. With respect to economic structures, and regardless of regional variations, each countries has a concentrated distribution of wealth. In social and human rights terms however, the differences are more acute: Benali’s Tunisia was considered the ‘Mother Of All Oppressive North African Regimes‘, while Egypt and Morocco, mainly because of their large population -compared to Tunisia- did not crack down on Human Right activists and bloggers with the same viciousness as in Tunisia, but still, both regimes exercise a watchful -and sometimes vengeful- eye on dissidence. Morocco however, has a more liberal dealing with dissidence, though it remains highly repressive.

Second, Morocco witnesses quasi-everyday protests: the unemployed graduates in front of Parliament alley in Rabat, or in the hinterlands, the so-called “Maroc Inutile” the ‘useless Morocco’, where denizens have access to basic services, but only just: reliance on rain barometer, high unemployment, arrogant, corrupt and rapacious local administration are but a few items that sometimes lead these parts of the realm to social resentment, and ultimately, popular protests that are either  put down by use of police force, or defused with usually empty promises. Compared to Tunisia, Egypt, Syria, Yemen and other countries, Moroccans are more willing to take to the streets, but only to protest for Palestine, and sometimes, just sometimes, against rising prices. When local demonstrations are staged, they do not usually target anyone in particular, and political claims are watered down by claims for more affordable cost of living. My theory is that by tolerating some minor, localized demonstrations, officials provide the people with an air-valve to defuse their frustrations and neutralize any possibility of a larger, more dangerous uprising. If that happens, there are thousands of unknowns to be determined: if the police is not enough, they might wheel-in the army. Are soldiers going to shoot live rounds to demonstrators? Who will give the ultimate order of ‘fire at will’? what part political powers are likely to play? Is the Regal institution going to be gainsaid too? All of this makes any prediction one way or the other most blurry, most difficult to estimate.
One thing for sure: these idiotic gesticulations about ‘love march’ and ‘we heart the King’ betray an increasing unease about the prospect that, after all, Moroccan people are not so fond of their Sovereign. It’ high time we faced the eventuality of such outcome.

What is to be made out of calls to stage a pro-monarchy demonstration on February 6th? Not much in fact. It could look like a makhzenian demonstration, but things could also turn sour with the police and security forces butting in. And before they know it, the brass would find themselves with a de facto revolt: riots, injured, possibly dead, worldwide TV cameras and bad publicity for a regime dying to distance themselves from the turmoil and marketing its institutions as an isle of democracy and freedom of speech.

The Unknown Lurks in the shadow of sudden twists in History.

So far, theses calls for ostentatious monarchism look at best laughable. It does not make sense, or it looks like a staged coup to reassure the policy-makers: “look Your Majesty, your Regal picture is all over Facebook and Twitter. Your subjects love you, sire”.

As a monarchy, we have a court. Favourites and courtesans prance about, trying to catch the Sovereign’s good graces. It could indeed be a re-enactment of a millennium-old ritual: when the Sultan visits a contumacious province, the local governor lines up the men and women, chanting and dancing for the pleasure of His Imperial Majesty the Sultan, providing such Thespian skills to provide for a façade of submission, good will and undying loyalty to the ruler of the day.

The trouble is, our governance modus operandi is so opaque, so esoteric that whatever event cannot, and will not be considered at its face value. Sane commentators and fair-minded citizens will ultimately see an anxious regime, trying to re-assure themselves that, no, the Moroccans are not Tunisians or Egyptians, and love their King genuinely. As far as things are, the angry mob would direct their frustration to other potentates: Wealthy families, essentially, with some figureheads as scapegoats (that the King might dismiss, when needs to be). But if old farts stick together, there will be a time, we’re no way near it, but still, were such fine nuances would be wiped out.

I hope the fine minds monitoring Morocco would take that into account, start defusing things by preparing real political reforms, and start addressing the economic weaknesses and shunning the fat cats they take to their bosom. Start pumping reforms, before the street takes you over !

(I can help the Royal Cabinet if they want me to. Please contact me for CV and Interview. MAD 80k entry salary, a car and an up-state house, opportunities to travel abroad)