PIMCO's El-Erian: Egyptians Must Step Up to Halt Violence

By: Bloomberg

PIMCO CEO Mohamed El-Erian appeared on Bloomberg Surveillance with Tom Keene today, and spoke about the situation in Egypt, where he spent his childhood. El-Erian said that, "It is very important for people inside Egypt to step up. This is not a situation where people from the outside can come in, whether they are people who were living in Egypt at one time, or whether it is foreigners. This is a situation where the Egyptians have to find a way to get over what is a very tragic, dangerous, and sad situation."

El-Erian also said, "If you look at the income distribution, if you look at the poverty numbers, over 40 percent of the population is below the poverty level. The revolution was about bread and dignity, or the social justice in addition to economic prosperity."

El-Erian on whether he's been contacted for service or whether he would serve in public office in Egypt if called upon:

"I haven't been contacted recently. And I think right now with what is going on in Egypt, it is very important for people inside Egypt to step up. This is not a situation where people from the outside can come in, whether they are people who were living in Egypt at one time, or whether it is foreigners, this is a situation where the Egyptians have to find a way to get over what is a very tragic, dangerous, and sad situation."

On whether Egypt is helpless:

"So what you are seeing today is the dark side of the political awakening and what has followed. So remember, revolutions tend to do well in dismantling the past, but have tremendous difficulty rebuilding a better future. And Egypt is flying this pivot and it is having problems. It is having a problem because there are no institutions to anchor this process. It is having problems because society is on the rise. And it is having a problem because the economy is in trouble. So what you are seeing there is the difficulty of this revolutionary pivot."

On whether it's a religious or political war:

"This is a political, social, economic, and institutional dislocation. So it is across the board. Nations need anchors and Egypt unfortunately did not build sufficient anchors during the period of repression and is now trying to build them on the run and is having difficulty. Having said that, it is really important to see the sunny side. It may not be very shiny right now, but the sunny side of the political awakening is what is happening at the grassroots level. If we speak to people there, they will tell you there is so much more involvement at the social, at the civic level. We're talking about health, education, about new entrepreneurs, about professional networks that are being formed. In the past, no one did that because they didn't feel they owned the country. They felt like landless peasants in a country that was run for the privileged few. Today, there is a very different sense. So if Egypt - and it is going to be really hard, Tom, but if Egypt can get over this process and find national reconciliation, what is happening at the micro level is significant and speaks to a better medium term. But the immediate future is a very uncertain one."

On what he would advise President Obama to do about financial assistant to Egypt's military:

"So I think the role of the U.S. and the role of Europe is much more than the financial aid they give. In fact, the financial aid that is given is peanuts compared to what comes from the Gulf. I'll give you an example. We speak about the billion plus that comes from the U.S. Well, $12 billion has come pretty quickly from Kuwait, the UAE, and Saudi Arabia."

On whether the U.S. is part of the dialogue:

"We are, and we should be because what we bring to the table is much more than dollars. What we bring to the table, first, each Egyptian's respect and admire the U.S. in general. Second, there is a lot of information know how, how other countries have navigated this revolution transition, so the U.S. can help. And thirdly, just helping these grassroot movements. They need a lot of assistance in terms of setting up institutions, etc. So there is a role to be played, but let's be clear, this is a role where you inform and influence, but not a role where you can dictate. This has to come from within Egypt."

On whether Saudi Arabia, UAE or Qatar should step up and take power in Egypt in either a direct or indirect way:

"So this notion of a police officer and this notion of a global police officer I think has become outdated. And it has become outdated, first, because of the political awakening that is happening in nations, but also because technology and social media has completely shifted the power from the macro to the micro. So this is no longer about being able to run societies from the top, and certainly no longer about being able to run the global economy from the top, okay? What we're seeing is now, it is the bottom that is being empowered, and the institutions have to evolve. And that is what Egypt and other countries are having difficulty evolving institutions. The institutions have to evolve to this new reality."

On what the new destination for the impoverished in Egypt should be:

"So Egypt has two problems, okay? One, is it wasn't growing fast enough; and secondly, the benefits of growth were going disproportionately to the better off. And that is why, if you look at the income distribution, if you look at the poverty numbers, over 40 percent of the population is below the poverty level. The revolution was about bread and dignity, or the social justice in addition to economic prosperity. So it is absolutely critical. Now, there are a lot of easy gains, I mean that is the irony when you look at Egypt. There are a lot of easy gains. If you simply reform the subsidy system, which right now subsidizes the rich, you can help a lot of poor people. So there are lots of easy gains, but nothing will happen before you get a political reconciliation."

On whether he links the situation in Egypt to a tepid global economy or whether it is a separate movement:

"I think Egypt is somewhat linked, but a separate moment. What you are seeing in markets today, and suppose you talk about it, is a number of factors. First and foremost, the disconnect that people got used to and were comforted by, which is don't worry about the tepid economy, companies will do just fine, both Wal-Mart and Cisco today question that. So Cisco laying off people, Wal-Mart talking about less traffic, both have the payroll tax having an impact, so this disconnect that the markets were very comfortable about is no longer as strong. Second, there is a strong sense - and Bill was on one of your shows yesterday and he put it at 80 percent, there is a strong sense that the fed wants to step back, that the fed no longer wants to increase the wedge between weak fundamentals and very high asset values. So combine the fact that people are starting to question this disconnect and the fact that the fed put is no longer perceived as strong as it was before and you get the across-the-board sell off. I mean it's interesting to see it is across-the-board. You're not seeing a flight to quality."

bloomberg.com

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