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Egypt: It's the Economy, Stupid

Protests continue on the streets in Egypt, as supporters of the Muslim Brotherhood and former President Morsi are clashing with the police and military. Government authorities threatened to forcibly clear two large protest camps in Cairo, while Senators McCain and Graham, on a visit to the country, urged restraint. But all of this continues to be just a prelude to the big issue: Egypt’s chronic economic problems. These will have a much greater effect on Egypt’s long-term stability than anything that happens on the streets this week.

The military appears to be aware of this. As the Financial Times reports, Egypt’s military-backed government is looking to introduce a “raft of short-term measures” in order to breathe life back into the country’s sinking economy. The real priority, though, is for the country to secure access to an IMF loan originally negotiated by Morsi. The Muslim Brotherhood failed to deliver the reforms required by the IMF, and the new regime may also have difficulty selling change to the people. According to Deputy Prime Minister for Economic Affairs Ziad Bahaa-Eldin:

“Our target of the next few months is to engage with Egyptian society in getting everybody to understand better the state of the economy, what are the constraints, what are the options and therefore what are the choices available to us to make,” he said. “I don’t think the attitude of concluding an IMF agreement and then presenting it as a fait accompli is one that public opinion accepts anywhere in the world any more.” […]

The interim government realises that foreign investment will hinge primarily on international confidence in Egypt’s progress towards democracy following the army’s ouster of Mr Morsi, Mr Bahaa-Eldin said. It plans to implement a political road map over six to nine months which includes amending the constitution, electing a new parliament and a president.

While securing foreign aid (including this IMF loan) will be important, figuring out some kind of formula by which the military can make its critics abroad happy about an IMF deal seems like a smaller problem than introducing the economic reforms that the IMF wants in exchange for the money. The FT may be overstating the willingness of foreign governments to play a game of financial chicken with Egypt over democracy. While the West may wring its collective hands over domestic issues in Egypt, not many people seem willing right now to push Egypt into bankruptcy and chaos over politics.

Through all the street violence and protests in Egypt, it’s important to keep an eye on the key issue: economic reform. Stability will be a key. Constant reports of riots and demonstrations in Cairo do little to lure foreign tourists and their money back to Egypt. Quelling unrest is just the start, though. If—and it is a very big if—the military and the civilian leadership are willing to work together to deliver serious economic reforms in exchange for IMF funding, and if other donors continue to cooperate, then, and only then, does a path forward for Egypt become possible.

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  • Jacksonian_Libertarian

    This is a perfect case for maintaining Neutrality, and just supporting the institutions and organizing of Democracy. In fact it’s all we should be doing in most of the middle east, instead Obama is getting in bed with Islamic fundamentalists and terrorists (Libya, Syria, Egypt) which is Stupid. McCain and Graham are idiots as well for saying anything beyond “we support new elections so Egyptians can have a say in their future”.

  • Thirdsyphon

    Egypt could probably do with some economic reforms, but considering that their greatest potential source of foreign exchange currency (and one of their best chances at boosting employment) is tourism, what Egypt really needs right now is peace in the streets.

    The IMF can and should push hard for economic reforms down the road, but right now it’s in the interest of the IMF (and the funding nations that it represents) to play nice. Giving the military caretaker government an infusion of money with few strings attached will go a long way towards containing the economic pain in Egypt; and it will encourage confidence in the ability of the Egyptian military to keep the economy on an even keel. Whether it’s warranted or not, we *want* Egyptians to have faith in their current government, at least to the extent of not wanting to overthrow it by fighting in the streets.

    • f1b0nacc1

      While I agree with most of what you are saying, I am somewhat leery of giving the military money with ‘few strings attached’. Remember, we are dealing with pretty much the same crowd who were running the show while Mubarak was in power, and these guys are world-class experts in graft and outright theivery. If we are simply talking about dumping more money down the black-hole of Middle East corruption, I am opposed, but if we can take some steps to see that the money reaches some who really need it, and thus we buy some social peace with the money (I know real reform is way too much to hope for), then I believe it is worth a try.
      In truth, though, I rather doubt any of this will end well…

      • Thirdsyphon

        Good point. The way things are going in Egypt, there’s a good chance of the money being stuffed into suitcases and flown out of the country by fleeing government officials. There’s also the delicate question of who one pays to buy peace in Egypt and who one pays it to. To the extent that the protests are being driven by genuine Islamist sentiment with no economic overlay, it probably can’t be bought off.

        On the other hand, what brought the previous wave of anti-Morsi protesters into the streets were lines for bread, lines for gas, and rolling blackouts.

        To the extent that daily frustrations like these are still stoking the flames of discontent (and why wouldn’t they be?) the IMF can target its assistance to relieve them, by direct material assistance, if the Army’s corruption should prove to be truly intractable.

        I share your lack of hope that this situation will end well. . . but now that Ramadan is over things might potentially cool off a bit in Cairo, especially if material conditions begin to improve. Considering the alternative, I’d say it’s at least worth a shot.

        • f1b0nacc1

          I suspect that we are on the same side here, but I am genuinely concerned that any of the powers that be (and that includes the Moslem Brotherhood, despite their self-proclaimed “clean hands”) are so corrupt that any foreign money will simply go towards nicer houses, bigger cars, and better looking mistresses.
          One consistent (and not entirely worthless) argument that is made by those in favor of continued efforts in these sinkholes is that if we dont’ continue to try to improve things (or at least prevent them from getting far worse), then the REAL bad guys will take over. I believe that this is where you are, and as I said, I have more than a small bit of sympathy for the argument. Might I suggest, however, that we lay out some notion of when we agree that it isn’t working, and needs to be stopped? I suspect that this would benefit everyone involved, not the least of whom might be the putative recepients of this aid, but giving them a notion of how far they can steal before we lose our tempers and do something that everyone will regret.
          Perhaps a Plan B (or C, or D, or…you get the idea) might be worthwhile to develop as well, i.e. what we do when the aid does just disappear into the kleptocratic pockets. Even if it isn’t needed in Egypt (and I hope against hope that it won’t be), we will certainly have some need of that sort of policy framework for the future….

          • Thirdsyphon

            Good points. I’d say for starters that to the extent that Egypt’s unrest is being driven by a lack of food, fuel, and electricity, as the CBS article suggests, then the IMF (or others) can respond to *cough* diversions of funds by replacing monetary assistance with shipments of food, gasoline, and LNG (or coal, or whatever other resources Egypt’s energy infrastructure runs on). If those material shipments are *themselves* diverted, perhaps by being sold to other governments on the black market, then a “Plan C” would indeed become necessary. . . assuming there’s still an Egyptian government left standing at that point to discuss it with. “Plan C” probably involves international peacekeepers, who might by that point be needed in any event.

            I don’t want to even think about a “Plan D”. . . .our track record in getting good outcomes from regions with failed states has been expensive and not very inspiring.

          • f1b0nacc1

            Constructive ideas, but not options for the IMF. The IMF loans MONEY, not ‘stuff’, which would make sending aid in kind problematic at best. In addition to that, you anticipate the problem of the Egyptian government (whichever group of crooks happens to be in charge at that moment) diverting the aid (see North Korea, aid policy of) even less tractable.
            This leaves us with Plan C (international peacekeepers), which is where we part company. I have become very fond of paraphrasing Bismark’s quote that ” is not worth the bones of a single American grenadier”, and Egyt is certainly an appropriate use of that wisdom. More to the point, this is not your generic third world pesthole, where the corrupt government has produced a eviscerated military. While no match for the Israelis (something that fortunately for them, the Egyptian high command understands all too well), the Egyptian military is more than a match for most of the gendarmes typically used for peacekeepers by UN. Inserting international forces into an Egypt in the process of collapsing would be inserting poorly trained, light infantry into a firefight between masses of heavily armed lunatics with some truly horrific firepower. Not likely to happen.
            I am not against trying the aid route once, with the clear understanding that graft will be punished in the most severe way possible (total cessation of future aid), but that is about as far as I am willing to go, and I am not optimistic about the outcome.

          • Thirdsyphon

            True. In reality, we don’t have a lot of good options here. And on reflection I agree with your point about peacekeepers being an ill-considered option. I realize the IMF only lends money, which is why I hedged a bit in the parenthetical. I had a vague hope that they might reach some sort of innovative arrangement whereby the nations contributing the assistance are paid (or subsidized) by IMF debt taken on by Egypt. . . but the IMF isn’t known for its flexibility.

          • f1b0nacc1

            Given their prior record, I would rather that the IMF not be terribly flexible…
            Believe me, I share your sentiments here..I want to be able to do something about what I am increasingly confident (not happily) is going to be a humanitarian as well as political catastrophe, but I simply don’t see much that can be done.

    • Pete

      Oh sure. give Egypt billions of dollars with little or no strings attached.j

      Just squander the money. Yeeeea.

      • Thirdsyphon

        Egypt is in no position right now to undertake deep structural reforms; and if the IMF makes an offer that demands such reforms as the price of its assistance, the only result will be to humiliate the military government and subject it to a bonus wave of protests from the Egyptian left.

        • Pete

          A few billion here, a few more there, what’s the difference, right?

          Just squander the money. It feels sooo good to throw it around.

  • USNK2

    Thinking the IMF is the big fix is short-sighted.

    IMF conditions for loans to Egypt should not be Egypt’s impetus for economic reform.
    Libya needs stability for Egypt’s economy to revive – what happened to the almost one million Egyptian guest workers who fled Libya?
    How many Libyan refugees are now in Egypt?
    Anyone have any deep insight for why Egypt has to import half their food? Agriculture reform?

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