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Summary·

September 11 and its fallout-the U.S. war on Afghanistan, continuous U.S. threats to expand the war to include all countries, regions, and groups that Washington deems terrorist or claims are abetting terrorism-was unquestionably a major event in modern economic history and the most important thing to happen to the global, Arab and Egyptian economies in 2001. It dragged the already stagnating American economy into a recession, pushed the global economy into a serious slowdown, and severely hurt Arab and the Egyptian economies. It also caused major changes in international economic relations, giving rise to a global fear of traveling, particularly from the West to Arab or Muslim states. These fears may have a long-term impact given the escalation of racist tendencies in the West against Arabs and Muslims September 11 also kindled global fears of the cross-country transfer of capital, whether in the form of direct or indirect investments or bank deposits. The new reticence to capital transfers is attributable to the escalation of racist tendencies specifically between the West and the Arab and Muslim world, the implementation of more stringent anti-money laundering laws, and the discriminatory monitoring of capital coming from Arab or Muslim states. The events of September 11 also enabled the conservative right currently in power in the U.S. to exaggerate the threat posed to the U.S. by external enemies to justify its rising fascism. We have thus seen a rising trend of policing, the domestic militarization of the economy, an aggressive tendency towards those states that Washington has designated as the enemy, and the rise of authoritarianism towards most states and peoples of the world. This transition has significant economic ramifications, specifically on the Arab region. The U.S. is likely to be more aggressive towards any effort by oil-exporting states to raise oil prices, or towards Arab states who seek to apply economic models that diverge from those backed by Washington. Thus, Arab states need wisdom and power to defend their interests without succumbing to American extortion.
This paper attempts to study the impact of the American crisis on the U.S. and global economy in general and Arab economies, including Egypt, in particular, and it will offer recommendations for Arab countries and Egypt to offset these negative effects.

Introduction
When U.S. President George Bush Jr. declared in a speech before the Asia and Pacific Economic Cooperation Forum (APEC) that the perpetrators of the September 11.attacks were attacking a liberal system seeking to secure the freedom of economic transactions, he did not offer a credible interpretation of the goals of the culprits charged by the U.S. with the explosions in Washington and New York. In the first place, the culprits are still unknown, and the targets chosen by the primary suspect in the attacks-namely, Osama Bin Laden-are ideological and political in nature rather than economic. Indeed, Bin Laden himself is, economically speaking, a capitalist. The U.S. President's words were rather an attack against anyone who would dare to take advantage of the fallen image of American might and the collapse of American impregnability by departing from the American economic model. This model is based on minimizing the economic role of the state, privatizing the existing public sector, opening up local markets to global imports regardless of a country's level of economic development, and liberalizing the services trade, or, in other words, opening markets to foreign capital. American capitalism in its most extreme form believes it has a key interest in achieving global sovereignty, or, in globalizing the American economic model.
The U.S. President is right to worry about the global sovereignty of the American economic model, which Washington, its allies from developed industrial states, the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO) have endeavored to implement globally. The world prior to September 11 is qualitatively different from the world following that unforgettable day. September 11 was a horrific event that destroyed the image of American might and revealed the fragility of depending on brute force to achieve security. U.S. security can only be achieved by a wise use of force and the discerning management of its superpower status, something the current American administration lacks. September 11 and its fallout had immediate effects in the political, social, security, and economic spheres. The long-term U.S. military campaign against Afghanistan and the likelihood that it will expand to include other countries has strongly affected the global, Arab, and Egyptian economies. We shall discuss the impact of September 11 and the U.S.-led war against Afghanistan on the U.S. economy, the global economy, Arab economies, and the Egyptian economy in order to come up with a perspective that will allow Arab economies in general and the Egyptian economy in particular to react to these events while maintaining their own interests.
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THE U.S. ECONOMY: FROM SLOWDOWN TO RECESSION

The events of September 11 came at a critical moment for the U.S. economy. The gross domestic product (GDP) of the U.S. was $9.7 trillion in 2000, the equivalent to 30.9% of global GDP calculated according to the prevailing exchange rate, or 21.7% of global GDP calculated according to purchasing parity (see table 1). The value of merchandise exports to the U.S. reached $772 billion in the same year, or about 12.1% of gross global merchandise exports, while U.S. merchandise imports reached $1,238.2 billion, or 18.7% of gross global merchandise imports. (1) U.S. service exports totaled $290.9 billion in 2000, or about 19.8% of gross global services exports; U.S. service imports totaled $217.1 billion in the same year, representing about 14.7% of gross global services imports in that year. (2)
1. Indicators of the Economic Slowdown
The U.S. economy had already slowed down severely before September 11, ending the longest period of continuous growth seen since World War II, achieved during the tenure of former President Bill Clinton, who served two presidential terms. While the real growth rate of U.S. GDP was 5% in 2000, IMF forecasts published in May 2001 indicated that it would decline to 1.5% in 2001. Unemployment, too, was expected to jump from 4% in 2000-the lowest level in 30 years-to 4.4% in 2001, and 5% in 2002. (3) Quarterly data shows that the real growth rate of U.S. GDP actually fell to 0.3% in the second quarter of 2001, thereby approaching recession levels. The U.S. industrial sector had already entered a slump last August, registering a decline in product of 4.8% over August 2000.(4) The decline is a logical result of the conservative economic policies adopted by the Bush Jr. administration. Bush's policies seek to decrease social spending, though overall spending creates demand, thus spurring on investment and growth in demand-driven developed economies. Bush also implemented federal income tax cuts for the wealthy, on the pretext that they would provide more money for businessmen to establish new growth-motivated investments. He overlooked the fact that the U.S. economy, like any other developed capitalist economy, is demand-driven rather than supply-driven. Tax cuts for the rich and cutbacks in social spending thus curb demand and are a disincentive for investment.
The U.S. economic slowdown prior to September 11 was partially due to soaring oil prices in 1999 and 2000 (see table 2). American imported 10.9 million barrels of oil per day (bpd) in 1999 and 11.5 million bpd in 2000, making the U.S. the world's biggest oil importer (5) The American oil deficit jumped from $43.7 billion in 1998 to $60.1 billion in 1999, an increase of 37.5%. By 2000, the deficit reached $109.1 billion, an increase of 81.5% over 1999. The deficit for the first six months of 2001 was roughly $52.5 billion. (6)
2. Impact of the Crisis
Amidst this alarming slowdown of the U.S. economy, the events of September 11 came to push it even closer to recession as a result of direct and indirect economic losses suffered in the attacks, the US-led war against Afghanistan, and the fascistic, unjustified use of collective punishment adopted by the U.S. administration to deal with the crisis both domestically and abroad. Direct U.S. losses from September 11 include the deaths of thousands of people, including a great number of experts in finance, trade, tourism, and computers, in addition to the information and property lost in the destruction of the twin towers and parts of the surrounding buildings. U.S. officials estimated that it would cost $40 billion to remove the debris from the World Trade Center, reconstruct the underlying tunnels, and rebuild the twin towers. (7) This is in addition to the damage to the Pentagon and the airplanes destroyed in the operations. With the U.S.-led war against Afghanistan, the American economy must bear the cost of mobilizing armies, equipment, and weapons, in addition to the cost of the weapons themselves. The U.S. President estimated the cost of the war to be about $35 million per day.
As a result of these losses, U.S. insurance companies have made enormous payments, around $20 billion according to preliminary estimates. The international ratings agency Standard and Poor's put the number at $22 billion fifty days after the attacks, although European insurers and reinsurers will assume half the damage. (8) The September 11 attacks were classified as an act of war, and since such acts are not covered by certain policies, it released insurance companies from some claims.
Fears generated by the September attacks led U.S. air carriers to reduce flights by 20%; two weeks after the attacks, airlines had laid off 100,000 employees. The U.S. government was subsequently forced to bailout U.S. airlines, providing a package worth $15 billion, $5 billion of which was earmarked as monetary aid with the rest going to loan guarantees. As a result of the general decline in aviation, demand for new airplanes fell, and Boeing, the world's largest airplanes manufacturer, laid off 30,000 employees, or 30% of its workforce. (9)
The flow of foreign investment and tourism to the U.S. is also likely to be dramatically affected as a result of September 11, as the events shook the world's confidence in security inside the U.S. itself. The eruption of racist tendencies against foreigners, specifically Arabs and Muslims, constitutes an inappropriate environment for the flow of investment and tourism. The U.S. witnessed 650 hate crimes against Arabs and Muslims in the two weeks following the attacks. According to the World Bank, the U.S. received foreign direct investments of $193.4 billion in 1999, or roughly 31.2% of the global direct investment flows. (10) IMF data shows that the U.S. received foreign investments of $301 billion in 1999 and $287.7 billion in 2000. Irrespective of the discrepancy in data, the U.S. receives enormous direct foreign investments, which place it in the forefront worldwide in this respect. (11)
The U.S. also receives tens of millions of foreign tourists annually. In 2000, about 50.9 million tourists visited the U.S., or roughly 7.3% of the 699 million tourists worldwide. Tourism spending in the U.S. totaled $85 billion in 2000, or roughly 17.9% of the gross global revenue from tourism, which reached $476 billion (not counting $24 billion in airline tickets). (12)
Animosity towards the U.S. has grown due to a number of factors: its arrogant behavior and a clear desire to dominate the world, its aggressive tendencies and its violation of other states' sovereignty, its insistence in maintaining unjustified sanctions against Iraq, its bias towards Israel in its aggression against the Palestinian people in the occupied territories, its degradation of major powers such as Russia in its attempts to create the American missile shield, and its determination to spy on China. The global hatred generated by these acts against the U.S. administration will result in more terrorist attacks in the future, as long as no other country is capable of confronting American military power and as long as America continues to show a lack of justice and wisdom in its role as the world's only superpower. In turn, this means that investment flows and tourism to the U.S. will continue to suffer in the long term, though they might temporarily pick up after the end of the U.S. war in Afghanistan.
The U.S. stock market, like any other, is sensitive to economic, security, or political unrest. In the week following September 11, it registered the largest one-week drop since its inception 210 years ago. The plunge continued, embodying a lack of confidence among investors and uncertainty about the future. The Dow Jones index, which tracks the movement of blue-chip stock prices, fell dramatically, losing 17.9% of its pre-September 11 value, and down 27.4% from the 2001 high. Although the index rallied after interest rates were cut, by November 2001 it was still 9.6% lower than pre-September levels and 20% lower than its 2001 peak. (13)
The Nasdaq index of modern technology companies fell 19.4% directly following September 11, a 50.2% drop from its 2001 peak. Despite the subsequent rise, by the beginning of November 2001 it was still 3.9% lower than pre-September levels and 40.9% lower than its 2001 peak.(14) Losses in the U.S. stock market, however, whatever their value, are still book losses that can be recouped when share prices rise. But the crash becomes truly painful to the economy when it damages real assets or causes the collapse of existing businesses.
In addition to the above, the cost of financing a war in Afghanistan against an enemy whose location and features are unknown will put further burdens on the U.S. economy. Alan Greenspan, Chairman of the Federal Reserve, stated that the cost of the war on terror may reach $100 billion. This would bring back the budget deficit for the first time since 1997.(15) Already the budget surplus declined to $91.8 billion in the first 11 months of the financial year ending in September 2001 from to $171 billion in the first 11 months of the preceding financial year.(16) The surplus achieved by former President Bill Clinton shrunk after George Bush Jr. implemented federal income tax cuts in the framework of his conservative policies to reduce welfare transfers from the rich to the poor. Increasing the upper-income bracket's share in GDP will increase the income of businessmen, which Bush claims will allow them to finance new investments that will in turn foster growth. This policy ignores the fact that the U.S. economy is, in essence, demand-driven and not supply-driven.
The U.S. economy must also bear the cost of rewarding those countries allowing the U.S. to use its lands and installations to launch attacks in retaliation for September 11. A U.S. congressional mission to Turkey proposed canceling Turkish military debts of $5 billion as a reward for the latter's unconditional support of the U.S. in the recent crisis and other major crises.(17)
In return for providing the U.S. with a launch pad to Afghanistan and a wealth of information on the Taliban and al-Qaeda, the U.S. lifted sanctions on Pakistan imposed after it carried out nuclear test explosions in 1998. According to Richard Boucher, spokesman for the U.S. State Department, Pakistan also received direct American aid of $1 billion, disbursed as follows: $600 million cash for the Pakistani state budget, $73 million for border security, $300 million in credit guarantees, $15 million for refugee aid, $34 million for drug control, and $6.5 million for anti-terrorism purposes. The U.S. also rescheduled Pakistani debts worth $396 million.(18)
According to Pakistani sources, in mid-October the Secretary of State promised to give Pakistan $7.7 billion as compensation for economic losses suffered due to the U.S. war against Afghanistan and the Pakistani government's support of the U.S. The U.S. also pledged to support Pakistan in its attempts to receive billions of dollars in aid from international financial institutions, including the IMF and the World Bank, and it has backed Pakistan's efforts at the Paris Club to reschedule its foreign debts.(19) Pakistan's foreign debt totals $38 billion, or 63.2% of the Pakistani GDP in 2000 ($60.1 billion). (20) Whether these promises will be fulfilled has yet to be seen, but the U.S. administration has already allocated $1 billion in aid to Pakistan to help offset the economic impact of the Afghanistan war. (21)
As the U.S. tries to build a network of anti-terrorist countries, it proposed to give Yemen $130 million in development and security aid if it would actively pursue Yemeni elements threatening American interests.(22) The Yemeni government is fulfilling its obligations by waging a war against suspected al-Qaeda members. At the same time, the anthrax attacks-the source of which is likely to be the extreme right Yemeni groups in the U.S. itself-led the U.S. legislature to launch an $8 billion plan to develop health infrastructure, increase the production of vaccines, and help Russia protect its stock of lethal microbes. (23)
September 11 led the U.S. to intensify security measures by increasing the number of security staff and developing security equipment and inspection barriers. Peter Morris, Director of the Research Department at the Economic Strategy Institute in Washington, estimated the cost of these measures at $110 billion, or double the federal income tax cut implemented by the Bush administration in 2001. As a result of these measures, productivity growth levels will decline from 3% annually to 2%-2.5% annually, and they will slow down the movement of goods and people. Alan Greenspan, Chairman of the Federal Reserve, stated that these costs are affecting the American economy, as they provide protection but do not contribute to raising the standard of living.(24)
3. Indicators of the Recession in the U.S. Economy following the Crisis
In his statement before the Joint Economic Committee in Congress, Alan Greenspan, Chairman of the Federal Reserve, attempted to reassure the American people and members of the legislature about the state of the economy, pointing to signs of recovery from the decline engendered by the September attacks. He stressed that U.S. economic prospects are bright in the long run. (25) Greenspan thus joined a minority of economists who anticipate that the U.S. economy will recover-or at least improve somewhat-after the September attacks and the exceptional spending they occasioned in reconstruction, weapons and security equipment, and the war against Afghanistan. But Greenspan's statement is similar to those that many officials make during times of crisis: they seek to hide the truth of the situation, fearing it will lead to further deterioration in the economy. In this respect, he is no different from any Third World official giving false reassurances to his people. In contrast to Greenspan's optimistic viewpoint, Lawrence Lindsey, the Economic Adviser to the White House, asserted that the U.S. is facing its first recession in ten years, saying that data indicates negative growth for the second half of 2001. (26)
Regardless of the divergence of opinions within the American elite, indicators show that the U.S. economy did enter a deep recession due to the huge losses it suffered as a result of the September attacks. September 11 negatively affected economic activity in general, with tourism, the hotel industry, aviation, and financial services being particularly hard hit. Official U.S. data indicates that American GDP was 0.4% lower in the third quarter of 2001 than in the same quarter last year. The decline is largely due to the sharp economic downturn in September. U.S. industrial product fell by 5.8% in September, continuing the pattern of negative growth already seen before September. The unemployment rate jumped as well, as the September attacks left an additional 400,000 workers unemployed, most of whom came from the ranks of airline companies, travel agencies, tourism related jobs, hotels, and retailers. The rise in the unemployment rate last October is the highest one-month hike in 15 years, after October 2000 recorded the lowest unemployment rate-3.9%-in three decades.(27) The extremely low rate of unemployment in October 2000 marks the peak of economic success of the Clinton administration, attributable to effective social policies that promoted economic growth. In light of the general downturn of the American economy, the consumer confidence indicator, which tracks the demand for goods and services, fell from 97% last September to 85.5% last October, and it will certainly fall even more, deepening the recession, at least in the short term.(28)
As a result of the deterioration of the American economy, U.S. companies are in their worst state in several decades and probably since World War II. The profits of the largest 1,700 American companies fell by 70%, to tumble to $30.7 billion in the third quarter of the current year, compared to $107.1 billion in the same quarter last year. Insurance companies lost about $1.64 billion in the third quarter of 2001, compared to profits of $3.7 billion in the same quarter of 2000. American airline companies lost $2.39 billion in the third quarter of 2001, compared to profits totaling $736 million in the same quarter of 2000. Losses reached their peak in Lucent Technologies, where revenues fell from $5.2 billion to $700 million. (29) General Motors, meanwhile, lost around $368 million last September while Microsoft's net profits shrunk by 41.8%.(30)
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