The Arab world’s most populous nation teeters on the edge of its own fiscal cliff. Foreign currency reserves have dwindled to a $15 billion “critical minimum,” the Egyptian pound is fast depreciating against the US dollar (4 percent over the past two weeks) and, in consequence, prices are soaring. Foreign investment is almost nonexistent and local investment is drying-up as entrepreneurs take a wait-and-see approach. Despite reassuring noises from the Central Bank, Egyptians are starting to panic, converting pounds into dollars and gold or, in some instances, withdrawing cash from banks destined to be stored under mattresses in fear their accounts could be frozen.
The main engine behind this downward spiral is loss of confidence fueled by political discord between the government and the opposition triggered by the president’s undemocratic power grab, ostensibly carried-out to bring a controversial Islamist-weighted draft constitution into force. Opposition parties were galvanized into uniting under the banner of the National Salvation Front, the judiciary is outraged at President Muhammad Mursi’s attempt to usurp its authority, media personnel are protesting against censorship of opinion—high-ranking police officers were incensed by the sacking of a popular interior minister, replaced by the former chief of prisons who has vowed to “strike with an iron fist against anyone that threatens the security of the nation and Egyptians.”
Furthermore, the heads of the armed forces are currently resisting a bill, approved by the president, allowing military absconders and evaders to run for parliamentary office on the grounds that such individuals are traitors to the homeland.
The president’s recent Cabinet shuffle when 10 new ministers were sworn-in—three drawn from the Muslim Brotherhood (MB)—has consolidated the MB’s influence and was seen as a snub to moderates and liberals.
Nevertheless, the president and his Muslim Brotherhood backers have thus far succeeded in retaining a loyal base—consisting mainly of the poor, uneducated and ultra-religious—that may represent over 50 percent of the population in this country of 83 million where almost 30 percent are illiterate, over 20 percent subsist below the poverty line and GDP per capita hovers around $6,000. These are people who have little except their families and their faith; people who were marginalized or ignored during the Mubarak era. They still trust in President Mursi’s pledges to improve their standard of living by introducing a decent minimum wage, providing job opportunities for youth and upping pensions. Even if the government has all the will in the world but doesn’t have the wherewithal to deliver, their patience will run out.
Indeed, that could happen sooner rather than later. Egyptians are facing income and sales tax hikes, cuts in subsidies, price rises due to the pound’s depreciation and an end to the fixed rent system introduced by Gamal Abdel Nasser. Naturally, the poorest will be hit most. Will they still love the Brotherhood when their children are going hungry or they can no longer afford medicines for a chronically-ill parent? It’s tragic that a country with the potential for substantial economic growth due to its natural resources, industry, agricultural land, unique tourist attractions and the Suez Canal is in such unnecessary dire straits.
President Mursi could turn things around on a dime if he quits listening to the Brotherhood’s Supreme Guide, embraces political pluralism, removes state control from the media and sincerely reaches out to influential opposition figures such as Amr Moussa, Mohamed ElBaradei and Hamdeen Sabahi. All Mursi needs to do is shelve his ideology for the sake of his nation’s practical needs and cultivate allies disposed to come to Egypt’s aid, such as Gulf states and the EU, instead of alienating them by laying out the red carpet for Iranian ministers and sending top level envoys to the UAE requesting the release of MB members accused of stealing state secrets and forming an illegal Brotherhood cell.
If Mursi chooses the right path, he could engrave his place in history as Egypt’s first democratically elected leader. There is help aplenty waiting in the wings provided he makes wise choices that will quell the anger on the street and bring much-needed stability. Those factors are the key to sealing a $4.8 billion IMF loan that will open further credit lines and reignite investor confidence. Director of the Middle East and Central Asia Department of the IMF recently confirmed that the body “remains committed to support Egypt in addressing its increasing economic challenges and moving to a more inclusive model of economic growth through a socially-balanced homegrown program.”
Mursi’s dilemma is this. The loan comes with a caveat. Austerity measures must be implemented. Cutbacks hurt and are often a recipe for civil unrest. Worse, from his perspective, they could fuel an angry backlash from the strata of society that keeps him in his job. This is why the government sought to postpone the process when anti-government protests were at their pinnacle last month.
Europe is also keen to help out. During a visit to Cairo on Sunday, EU President Herman Van Rompuy announced that the European Union is prepared to offer Egypt grants, loans and concession loans amounting to 5 billion euros to support the country’s economy and encourage short-term democratic transition. However, the offer will manifest on condition the government signs-up to the IMF loan. Van Rompuy said a fully-fledged EU-Egypt free trade agreement is also on the table and will soon be up for negotiation.
All Mursi needs to do is to put his country before his party and prove that he is a president for all Egyptians, a solemn pledge he made during his inaugural speech. True, there’s is no magic bullet for Egypt’s woes but a hefty injection of pragmatism will go a long way in effecting a cure.
Linda S. Heard is a British specialist writer on Middle East affairs. She welcomes feedback and can be contacted by email at heardonthegrapevines@yahoo.co.uk.
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Right policies can rescue Egypt
Posted on January 18, 2013 by Linda S. Heard
The Arab world’s most populous nation teeters on the edge of its own fiscal cliff. Foreign currency reserves have dwindled to a $15 billion “critical minimum,” the Egyptian pound is fast depreciating against the US dollar (4 percent over the past two weeks) and, in consequence, prices are soaring. Foreign investment is almost nonexistent and local investment is drying-up as entrepreneurs take a wait-and-see approach. Despite reassuring noises from the Central Bank, Egyptians are starting to panic, converting pounds into dollars and gold or, in some instances, withdrawing cash from banks destined to be stored under mattresses in fear their accounts could be frozen.
The main engine behind this downward spiral is loss of confidence fueled by political discord between the government and the opposition triggered by the president’s undemocratic power grab, ostensibly carried-out to bring a controversial Islamist-weighted draft constitution into force. Opposition parties were galvanized into uniting under the banner of the National Salvation Front, the judiciary is outraged at President Muhammad Mursi’s attempt to usurp its authority, media personnel are protesting against censorship of opinion—high-ranking police officers were incensed by the sacking of a popular interior minister, replaced by the former chief of prisons who has vowed to “strike with an iron fist against anyone that threatens the security of the nation and Egyptians.”
Furthermore, the heads of the armed forces are currently resisting a bill, approved by the president, allowing military absconders and evaders to run for parliamentary office on the grounds that such individuals are traitors to the homeland.
The president’s recent Cabinet shuffle when 10 new ministers were sworn-in—three drawn from the Muslim Brotherhood (MB)—has consolidated the MB’s influence and was seen as a snub to moderates and liberals.
Nevertheless, the president and his Muslim Brotherhood backers have thus far succeeded in retaining a loyal base—consisting mainly of the poor, uneducated and ultra-religious—that may represent over 50 percent of the population in this country of 83 million where almost 30 percent are illiterate, over 20 percent subsist below the poverty line and GDP per capita hovers around $6,000. These are people who have little except their families and their faith; people who were marginalized or ignored during the Mubarak era. They still trust in President Mursi’s pledges to improve their standard of living by introducing a decent minimum wage, providing job opportunities for youth and upping pensions. Even if the government has all the will in the world but doesn’t have the wherewithal to deliver, their patience will run out.
Indeed, that could happen sooner rather than later. Egyptians are facing income and sales tax hikes, cuts in subsidies, price rises due to the pound’s depreciation and an end to the fixed rent system introduced by Gamal Abdel Nasser. Naturally, the poorest will be hit most. Will they still love the Brotherhood when their children are going hungry or they can no longer afford medicines for a chronically-ill parent? It’s tragic that a country with the potential for substantial economic growth due to its natural resources, industry, agricultural land, unique tourist attractions and the Suez Canal is in such unnecessary dire straits.
President Mursi could turn things around on a dime if he quits listening to the Brotherhood’s Supreme Guide, embraces political pluralism, removes state control from the media and sincerely reaches out to influential opposition figures such as Amr Moussa, Mohamed ElBaradei and Hamdeen Sabahi. All Mursi needs to do is shelve his ideology for the sake of his nation’s practical needs and cultivate allies disposed to come to Egypt’s aid, such as Gulf states and the EU, instead of alienating them by laying out the red carpet for Iranian ministers and sending top level envoys to the UAE requesting the release of MB members accused of stealing state secrets and forming an illegal Brotherhood cell.
If Mursi chooses the right path, he could engrave his place in history as Egypt’s first democratically elected leader. There is help aplenty waiting in the wings provided he makes wise choices that will quell the anger on the street and bring much-needed stability. Those factors are the key to sealing a $4.8 billion IMF loan that will open further credit lines and reignite investor confidence. Director of the Middle East and Central Asia Department of the IMF recently confirmed that the body “remains committed to support Egypt in addressing its increasing economic challenges and moving to a more inclusive model of economic growth through a socially-balanced homegrown program.”
Mursi’s dilemma is this. The loan comes with a caveat. Austerity measures must be implemented. Cutbacks hurt and are often a recipe for civil unrest. Worse, from his perspective, they could fuel an angry backlash from the strata of society that keeps him in his job. This is why the government sought to postpone the process when anti-government protests were at their pinnacle last month.
Europe is also keen to help out. During a visit to Cairo on Sunday, EU President Herman Van Rompuy announced that the European Union is prepared to offer Egypt grants, loans and concession loans amounting to 5 billion euros to support the country’s economy and encourage short-term democratic transition. However, the offer will manifest on condition the government signs-up to the IMF loan. Van Rompuy said a fully-fledged EU-Egypt free trade agreement is also on the table and will soon be up for negotiation.
All Mursi needs to do is to put his country before his party and prove that he is a president for all Egyptians, a solemn pledge he made during his inaugural speech. True, there’s is no magic bullet for Egypt’s woes but a hefty injection of pragmatism will go a long way in effecting a cure.
Linda S. Heard is a British specialist writer on Middle East affairs. She welcomes feedback and can be contacted by email at heardonthegrapevines@yahoo.co.uk.