El-Erian Sees Different Outcomes for Mideast Countries

The dramatic events in the Middle East and North Africa take a new turn every day, and it is a daily challenge for financial markets to assess a very uncertain future for the region.

Pimco CEO Mohamed El-Erian shared his thoughts on what may come next for some countries where regime change is happening, or may happen:

Understandably, many are wondering about what comes next; and, understandably, predictions are subject to unusually wide bands of errors and uncertainties. With this said, I suspect that we may now be entering a period of much greater differentiation among MENA countries.

If this is correct, the sense of an unstoppable and unpredictable tsunami of change may be replaced by a need to distinguish among different country dynamics. And should this materialize, the world will face a dual challenge — understanding and dealing with what may well be four distinct groups of countries within MENA; and comprehending a new set of regional dynamics which involves different interactions among countries. Let us address each in turn.

Post-regime change countries, such as Egypt and Tunisia, are working hard to complete their revolutions and to ensure an orderly and complete transition to greater democracy and individual freedoms. Success lies in the following factors: defining a vision and associated action plan which command sufficient popular support; coordinating simultaneous progress on related economic, political and social issues; and implementing appropriate mid-course corrections as needed.

This is a doable but difficult task that must be undertaken primarily by domestic institutions (though each county will also need the timely support of friends and allies). It will not be done overnight; it will not be linear; and it requires a number of prerequisites, including the urgent and orderly resumption of normal daily economic and financial life.

Some other countries in the region (possibly Bahrain) could well join Egypt and Tunisia in experiencing some type of relatively peaceful regime change. Governments in these countries are already on their way to recognizing that basic change is unavoidable to accommodate the widespread demands of their people.

A third group of countries, including in the GCC**, will likely avoid regime change. Governments have the willingness and ability to respond proactively and preemptively. They start with greater political and social legitimacy, as well as better means to help citizens deal with economic and social pressures. Indeed, some have already shown considerable skillfulness in understanding the dynamics in play and have reacted accordingly.

The final set consists of countries, including Yemen, is in the process of overthrowing their repressive governments but also risk becoming “failed states.” If they are not careful, fragmentation and chaos could result, with the risk of inflicting tremendous further pain on citizens and also threaten to undermine the stability of other countries.

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* MENA: Middle East and North Africa

** GCC: Cooperation Council of the Arab States of the Gulf (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates

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