Dear Netters:

In the past eight years of its existence, the infant state of Eritrea has exhibited a remarkable degree of aggressiveness. This is a natural outcome of the militaristic nationalism exhibited by the Eritrean elites.

While the invasion of Ethiopia has provided a short-term 'testosterone boost' to the Eritrean elite, the long-term ramifications of the conflict are extremely negative for the common Eritrean people.

In effect, Eritrea lost the war when it sent troops into Badime on May 12, 1998.

This is already clear on the economic front.

On the military front, the Eritrean army has already been routed from the most significant territory it invaded (Badime). It is only matter of time before the remaining areas are liberated.

Although Eritrea's economic crisis is a story that Eritrea tries to suppress (Alex Last will never cover it) Eritrea's economy is in deep trouble. For example;

• The Eritrean government lost over $100 million dollars per year in direct and indirect revenue from Ethiopia. This includes about $42 million dollars in port fees. In addition, Eritrea had already lost about $20 million in annual hard currency revenue from operation of the Assab refinery and re-export of furnace oil.

• Eritrean industry lost its most important export market (Ethiopia), accounting for 67% of exports (over 40 million dollars in 1997).

• Eritrea lost its single largest source of imports (Ethiopia). These imports were paid for using local-currency, and must now be substituted by hard-currency imports.

• Many shipping agents at Massawa and Assab lost most of their business. ·

• What little foreign investment activity there was in Eritrea has come to a standstill. ·

• The single largest item in Eritrea's budget has become military spending, now accounting for probably over 50 percent of the total budget.

Overseas Eritreans are raising funds for their desparate government, but this will barely cover the lost Ethiopian port revenue. To fund its war, Eritrea is now dependent on the charity of Libya and some of the Gulf states.

For a glimpse of how Eritrea has brought economic disaster on itself, one must look at the few independent journalists who have reported on the economic effect of the war. Here are a few excerpts from various news services:

At a factory on the airport road, a young manager shakes his head over the growing piles of stock once destined for Ethiopia, and now with nowhere to go. His generation of entrepreneurs, he admits, feels a certain impatience towards the antagonisms built up on the battlefield. "We have to find a solution that allows both of us to save face while yet conceding." Financial Times, June 20, 1998; "Saving Face - Losing All"

In the hilly village of Ady Niffas, just outside the Eritrean capital of Asmara, Ilan, a 52-year-old Israeli, offers his cattle a meal of the carnations that he can no longer export to the lucrative European market. Some 30 percent of Ilan's produce was exported to Ethiopia and this market, too, has gone.

``I thought these countries -- Eritrea and Ethiopia -- would never fight because their leaders have always been together,'' Ilan told Reuters, his head bowed in defeat. ``It was not in my business calculations.

``I am feeling a little tired right now. I have lost seven years of extremely hard work. I came here when there were no foreigners. I started from scratch. Now it is scratch again.''

``We were already having difficulty and flight delays were proving costly,'' Ilan said. ``But with the eruption of the conflict, we cannot export anything. There are no flights. The European summer supermarket contract has now gone to someone else. By Manoah Esipisu, Reuters, June 21, 1998

Just when Eritrea had finally cut its budget deficit to single-digit levels, the border conflict with its Horn of Africa neighbour Ethiopia threatens to put the countrys hard work at risk. Treasury officials say they will have to dig deep to finance the cost of the conflict, incurred by the thousands of troops deployed along the country's long border with Ethiopia. "Ethiopia conflict seen threatening Eritrean budget" By Manoah Esipisu, Reuters, June 22, 1998

Massawa, (BBC) - High insurance prices because of the war mean that if the crisis continues, other ships may stay away. Local traders are putting on a brave face, but financial hardship looms. "It is a disaster for everybody," said one trader. "Other foreigners from neighbouring countries will stop doing any business with us." "Eritrean port becomes victim of war"; BBC, June 30, 1998 (By Cathy Jenkins)

Even though there has been no significant fighting in three weeks, the war is taking a toll -- especially on agriculture. Hans Minab, a 55-year old farmer, toils under the hot sun near his small village, Shiketi, about 20 kilometers west of the capital, Asmara. Only his youngest son is helping him in the fields. Two older sons, aged 19 and 21, have gone to fight at the front. Mr. Hans says he would love to have had his older sons helping him, but they had to do their patriotic duty. Of course, he says, it means the harvest will not be as good, since he does not have their help. "Eritrea Agriculture" By Carol Pineau, VOAs, July 7, 1998

Eritrea's central bank said on Tuesday it has started selling treasury bonds to raise funds to stabilise an economy threatened by a stand-off with former key trading partner Ethiopia. ``The issuance of the bonds will help offset problems with the budget deficit,'' a senior central bank official said. Eritrea's economy has been under severe stress since a row over disputed border territory escalated into conflict in May in which hundreds were killed.

Central bank adviser Girmai Abraha told Reuters the impact of the stand-off could be felt in transport, trade and tourism. He also pointed to limited traffic at the Assab port, which was a conduit for Ethiopian imports and exports. To cope with the growing economic crisis, the Eritrean government recently increased marginal rates of income tax -- in some cases by as much as 100 percent -- to replace a system under which citizens volunteered their salaries to the war cause. Reuters, November 3, 1998

Tesfu Twelde, an official at the government shipping agency, said that before the crisis he ran a lucrative transit business handling imported chemicals, stationery and raw materials for Ethiopian clients. The border war halted his trade and, as he thinks, of 25 similar enterprises, too. "Assab suffers as war reignites" BBC (Cathy Jenkins), Feb 16, 1999

Assab, once a major transit station for cargo ships calling at the Red Sea ports in Yemen and Dubai, has been reduced to servicing only four ships a month. More than 90 per cent of its business was lost when Ethiopia boycotted the port over a currency and access issue last March, and started using neighbouring Djibouti instead. The Independent, Feb 19, 1999

ASSAB, Eritrea (AP) -- Kuflom Tekle sat at a roadside cafe, staring mutely across the road at the silent cranes of this once-bustling Red Sea port that used to employ him. In the Horn of Africa war between Eritrea and Ethiopia, Assab is one of the worst economic casualties. The port is empty, schools are closed, and restaurants and hotels have few guests. It is a town on hold, waiting for the war to end.

Tekle, 38, is one of about 3,200 laborers who lost their jobs at the port last May, when the border war started. "We heard there were jobs to build roads," Tekle said Tuesday, sitting at an empty table without enough money to buy a cup of coffee. "So we have hope that we will find jobs." "Once bustling Eritrean port town withers under shadow of war" AP, Feb 17, 1999