Elliott Abrams

Pressure Points

Abrams gives his take on U.S. foreign policy, with special focus on the Middle East and democracy and human rights issues.

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Economics May Trump Politics in Egypt

by Elliott Abrams
June 8, 2012

Egypt’s political crisis is getting the attention it merits as the presidential election approaches.  But the economic crisis is not getting enough.

The financial commentator David Goldman wrote in April that “Last week, Egypt’s central bank reported that total reserves had fallen to $15 billion, but – more importantly – liquid foreign exchange reserves had fallen to only $9 billion, equivalent to just two months’ imports. Foreign exchange futures markets expect the Egyptian pound to lose half its value during the next year….”

Mohammed Samhouri, an economist at the Regional Center for Strategic Studies in Cairo,wrote this week that Egypt has no realistic way to meet the $22.5 billion budget deficit it faces for the fiscal year that’s about to start. Foreign exchange reserves are too low to meet it, and domestic borrowing will not be sufficient either; banks already have too much state debt. Foreign borrowing may not be available in sufficient quantity either: Egypt has still not closed its IMF loan of $3.2 billion, and most of the generous pledges made in various international conferences have not been fulfilled.

Samhouri adds that “Sluggish growth in Europe (projected at near zero in 2012) could pinch Egypt’s prime export market (36 percent in 2010) and the source of much of its foreign investment (61 percent in 2010). Additionally, Egypt remains very vulnerable to world prices of food and fuel—it imports 60 percent and 40 percent of both commodities respectively. Spikes in prices could further complicate its fiscal management.”

Meanwhile, Egypt’s population has grown by about a million and a half people since Mubarak was overthrown. As Samhouri sums it up, “forget the promises made during the presidential election campaign season; they all pale in comparison to the enormous and much more immediate fiscal challenges the new president will face when he takes his office on July 1—not just inauguration day, but the beginning of the new fiscal year.”

With this in mind, critics of the Muslim Brotherhood may wonder whether they should be rooting for or against the MB presidential candidate Mohamed Morsi. Together with Salafis of the Al Nour party, the MB holds 67 percent of the seats in parliament. If it wins the presidency it will be fully responsible to rescue Egypt from this economic crisis. If it fails, we can expect that it will be punished in the next elections; indeed the showing made by Gen. Ahmed Shafik in the first round of the presidential elections may reflect that MB popularity is already declining as Egyptians seek answers to the country’s problems. No doubt some millions will respond to rousing speeches and to emotional and religious appeals, but millions more will wonder where their jobs and their food are going to come from. The Brotherhood’s fate may depend less on persuading Egyptians of its social, political, and religious views than on whether it can turn around the numbers that point to a deep economic crisis within months of the elections.

Post a Comment 9 Comments

  • Posted by Indagano

    The author’s analysis is bang on point. Couldn’t agree more. Hopefully the real solution, which Egyptians and Egypt is waiting for, will be brought to the table.

  • Posted by Dan

    Unfortunately, “the author’s analysis” is based on a USA think-tanker”s parochialism. naivete and wishful thinking.

  • Posted by Diane

    “If it fails, we can expect that it will be punished in the next elections”

    Does anyone really think there’ll be any more elections in Egypt once the MB is in charge?

  • Posted by Elliott Abrams

    A reply to Diane: good question. The reason for some optimism does not lie in the MB, but rather in that it does not control the Army. At least for now, it would be unable to impose a desire to eliminate elections. And the strong support for Gen. Shafik ought to show the Army that they need not bow, for they actually have considerable public support.

  • Posted by diane

    How can the Army impose elections against the government’s will? Armies can overthrow governments, but set up polling stations, print ballots, certify voter registrations? That would be a first.

  • Posted by Steve

    If the MB controls the parliament and the executive, there will be no second election that can be lost. They did not come to power to implement the Austrian school of economics. They came to power to implement Islam. They do not mean to let power slip away because of the devaluation of the Egyptian pound.

  • Posted by Dan

    Steve, you’ll never be a neocon, policy-maker or a diplomat. Which is my way of saying you are too bright and clear-eyed for that.

  • Posted by what is occupation

    So Obama, with his great redistribution ideas, is posed to encourage another quantitative easing of about 800 billion to a trillion.

    In short?

    Cause the 3rd world food and fuel prices to skyrocket….

    Thus causing starvation and chaos across the developing world, not to mention pain at the pump for 2 billion others…

    Maybe Obama is a agent of change alright….

  • Posted by The Arbiter of Digression

    We’re fortunate to have such access to someone of Elliot’s stature and experience, who very well may have a role to play in the next administration (a change which has to happen, right? Only Romney can tame Ryan and Boehner’s desire to quelch ‘uncertainty’ with certain disaster.)
    Great point on prices in the Middle East, but Bernanke is Bush’s guy and the originator of QE. Better to have reflation, in the short-run. Have you seen North Dakota’s GDP lately? That’s Washington’s concern, not prices abroad.

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