The
economics of confrontation in
Egypt By Spengler
Egypt
has enough foreign exchange on hand to cover six
weeks' of its imports (US$7.8 billion in liquid
reserves, against a $5.5 billion monthly import
bill). It would have run out of cash in June
except for emergency loans from Saudi Arabia,
which backs the Egyptian military but abhors the
Muslim Brotherhood, whose candidate Mohammed Morsi
won Egypt's presidential election last month.
Total reserves are listed at $15 billion, but this
includes gold, International Monetary Fund (IMF)
drawing rights and other non-liquid items.
The economic context is necessary to make
sense of Egypt's politics: it points to an
important conclusion, that no path exists to
stable rule by the Muslim Brotherhood. Saudi help
has kept
Egypt's economy away from
the brink of collapse, but only just. A paralyzing
fuel shortage threatens to shut down essential
functions, including bread supplies. If the Muslim
Brotherhood were to push the military out of
power, the Saudis almost certainly would pull the
plug and leave Egypt in chaos.
Figure 1: Egypt's Liquid
Reserves Cover Six Weeks of Imports
A situation of dual power, to use the old
Bolshevik term, prevails between the Brotherhood
and the military. At this writing the Supreme
Council of the Armed Forces (SCAF) had called an
emergency meeting to respond to President Morsi's
attempt to revoke the military's earlier decree
dissolving Egypt's Islamist-dominated parliament.
Morsi announced that the dismissed parliament
would meet within hours; some news reports from
Cairo expect the military to refuse entry to
members of parliament. The speed with which Morsi
moved to confront the military surprised most
analysts, who expected a few months of regroupment
before the Islamists tested the military's
resolve.
There are two likely explanations
for the Muslim Brotherhood's gamble. One is that
economic distress requires the Brotherhood to
rally its base in a dramatic action; another is
that the Brotherhood has been emboldened by the
perception that it enjoys the tacit support of the
White House against the military. A test of wills
between the military and the Muslim Brotherhood,
though, would lead to disaster.
A number
of observers, for example Ilan Berman of the
American Foreign Policy Council, and ex-CIA
official Robert Grenier, predict that the military
will crush Egypt's Islamists like Algeria's
military regime two decades ago. By supporting the
Muslim Brotherhood against the military, the Obama
administration has raised the probability of
bloodshed.
It is not clear, moreover,
whether Saudi generosity can stabilize Egypt even
under the best of circumstances. With its trade
deficit running at $3 billion a month, and other
sources of revenue much reduced, the country's
annual financing needs probably exceed $20
billion. Egypt is the world's largest importer of
wheat and depends on imports for half its caloric
consumption.
Exhibit 2: Egypt Imports and
Exports Source: Bloomberg
President Morsi will visit Saudi Arabia
later this week, presumably to persuade the Saudis
to support his regime (and perhaps to threaten
them if they do not). It will be a difficult
dialogue, after the Muslim Brotherhood staged
riots against Saudi diplomatic installations in
Egypt late in April (see The
horror and the pita, Asia Times Online, May 1,
2012), and a senior Saudi advisor told Egypt's
largest daily al-Ahram June 21 that the Muslim
Brotherhood lacks the vision and experience to
govern the country. The Saudi-sponsored Islamist
party in Egypt, the Salifi Nour Party, has
threatened to boycott Morsi's cabinet on a number
of religious grounds that probably express Saudi
discontent.
The volume of aid for which
Egypt present is negotiating is tiny relative to
its financing requirements. On June 2, the Saudis
put $1 billion into Egypt's foreign exchange
reserves and bought $500 million in Egyptian
government bonds on June 4. And on June 8, the
Saudis announced that Egypt could use a $750
million credit line to import fuel "based on the
severe oil-products shortage faced by Egypt,"
according to an e-mailed statement from the Saudi
Embassy in Cairo. In addition, Egypt is expected
to receive a US$1 billion loan to finance energy
and food imports from the Saudi-based Islamic
Development Bank (IDB).
Almost as soon as
the checks cleared, the Egyptian military
dissolved the Islamist-dominated parliament.
It appears that the authorities are trying
to skip on foreign exchange by restricting fuel
imports. Diesel fuel and gasoline have been in
chronic short supply for the past year, and the
shortage appears to be getting worse. As the Egypt
Independent reported July 3: "This summer season,
already hectic with election fever, has only seen
worse shortages and longer lines, with diesel, the
gasoline 80 that is commonly used by taxis, and
other fuels all but disappearing from many pumps.
…In the Upper Egypt city of Minya, on the first
day of the presidential runoff, gas stations had
longer lines than polling stations."
Egypt
is also negotiating with the International
Monetary Fund for a $3.2 billion loan, which
presumably will open up other possible funding
sources. The IMF loan is contingent upon the
president's negotiations with the SCAF on a new
government.
Evidently the Saudis are
keeping Egypt on a short leash. They do not want
to let the country slide into financial distress
as long as the military remains in charge, but
neither do they want to provide resources to a
Muslim Brotherhood regime that might subvert the
monarchy.
Exhibit 2: Egypt Imports and
Exports Source: Bloomberg
The
problem is that Egypt's economy is a dog that
cannot hunt now and cannot be made to hunt in the
future. Without the Saudi lifeline, Egypt will
stop some essential imports in a matter of weeks.
Why, then, is Mohamed Morsi picking a
fight with the military?
As Jackson Diehl
put it in the Washington Post July 8, "Last month
the administration leaned heavily on the ruling
military council to recognize Morsi's victory in a
runoff election. Lobbying by [US Secretary of
State Hillary] Clinton and Defense Secretary Leon
Panetta may have prevented the council from
handing the presidency to its favored candidate, a
former prime minister. But it infuriated the
generals, Egyptian Christians and some US
supporters of Israel, who fear the Islamists more
than the old regime."
With backing from
the Obama administration, and enormous pressure
from his political base, Morsi has rolled the dice
with the military. The result is likely to blow up
in his face as well as the Obama administration's.
At best, international aid will allow the
status quo to continue a while longer. But the
status quo involves a barely-adequate supply of
bread, a dreadfully inadequate supply of fuel, and
no outlook for the future except poverty and
insecurity. It seems most unlikely that a
political or economic equilibrium can be
established on such a wobbly base. The uneasy
modus vivendi between the Muslim Brotherhood and
the military most likely will fail, and probably
sooner than later.
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