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Flying over the Mediterranean Sea from Beirut to Dubai, I decided that it would be a mistake not to share with readers the insights that I have gathered from a stay of more than a week in the Middle East. I may not have stood in the Tahrir Square in Cairo with protesters, but I spoke to several bankers, businessmen, policymakers and fund managers. The one thing that all of them shared was apprehension about an uncertain future not just for Europe but for the Arab world. Yes, they all agree that something has irreversibly changed in the Arab world. But what they are not sure about is whether that change would be for the better or for the worse, how long the process of change would last and how smooth would the process be.

Also Read |V. Anantha Nageswaran’s previous columns

Nicholas Kristof was in Tahrir Square and he exhorts all of us to be Egyptians now. Landon Thomas, Jr exhorts Egyptians to take a leaf out of the moderate Islamic Republic of Turkey—a robust democracy. The problem with the advice is that some inconvenient truths about recent changes in attitudes of Turkish government have been glossed over. In fact, both Kristof and Thomas, Jr should read the accompanying article in the International Herald Tribune on the futile attempts of Ayad Allawi to establish a modern Iraqi state. The region remains mired in power plays between various groups and hence the concept of a “broader nation with equal rights over an ethno-sectarian model" is not easy to establish.

It took what appeared to be an eternity for me to answer a question by a fund manager in Kuwait on what I did not like about their country or the Arab society. He urged me to be politically incorrect. My answer was that their societies were cast-iron insular. No foreign national has any right in those countries and they can forget about acquiring citizenship—a stake in a nation-state—and other property rights. Arab nationals routinely acquire citizenship in other countries. The reason why foreign nationals cannot acquire citizenship in several (almost all) countries in the region is simple: foreigners do not belong culturally or religiously to the region.

If the rulers of these countries see themselves as priding over nation-states, then they would have little difficulty in granting stakes to others in such a sovereign entity. These countries need loads of talent in establishing even the most rudimentary elements of a modern, liberal society or economy. It would be a lot easier to attract talents needed to establish them and run them, if they could be granted a stake in the society or economy that they would be helping to create.

Hence, while exhorting the rest of the world to wish Egyptian protesters well, it would also be useful if some of the sympathetic journalists were to ask them about the template that they have for a post-Mubarak Egypt. If Egypt, a country of 85 million people, can create a moderate, liberal, secular Arab democracy matching that of Turkey or Indonesia, then they will have done a tremendous service to the cause of stability in the region. Right now, the Arab leadership is looking at subsidies and palliatives as solutions for the rise in cost of living and unemployment that largely bedevil many nations, especially the non-oil-rich nations. Oil-rich nations, too, are not (at least, not yet) thinking in terms of a regional fund that would share the oil and revenues with their poor neighbours for providing immediate relief and for creating institutional capabilities in their own countries and elsewhere in the region.

Financial markets have not fully internalized the import of governance in the Arab world being marked by competition between groups that have narrow interests. In their quest to spot and sell the MENA region (Middle East and North Africa) as the next Bric, investment managers and fund-houses betray either their ignorance of, or indifference to, risks or a combination of both. Countries do not evolve overnight into modern, liberal states with protection for minorities and investors. They take enormous amounts of time to do so, if at all they do.

Hence, even now, fears of contagion (within the region and outside) and prolonged period of uncertainty are being understated or dismissed by commentators outside the region. People in the region that I met and spoke to did not come across as so sanguine. Underplaying a risk, if it is not well understood, is the recent hallmark of the financial industry. Easy money and denial constitute both necessary and sufficient conditions for positive returns from financial assets.

Finally, events in the region should serve as a warning as to the dangers of financial speculation fuelled by easy money. Easy money in tandem with natural supply constraints is pushing up prices of commodities creating an inflation problem for developing countries, even if Ben Bernanke strenuously denies any responsibility. History would beg to differ.

V. Anantha Nageswaran is chiefinvestment officer for an international wealth manager. These are his personal views. Your comments are welcome at baretalk@livemint.com

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