In his major speech yesterday on the Middle East, President Obama acknowledged that while the protests gripping the region have been driven largely by politics, economics have also played a prominent role. I discussed some of the economic challenges facing the region in this video interview:
To assist transitions to democracy, Obama pledged that the United States would support economic development in the Middle East. “Just as democratic revolutions can be triggered by a lack of individual opportunity, successful democratic transitions depend upon an expansion of growth and broad-based prosperity.” To that end, he called for debt relief for Egypt to the tune of $1 billion, another $1 billion of loan guarantees to finance infrastructure and job creation, and a $2 billion OPIC facility to support private investment across the region. He also announced the launch of a new Trade and Investment Partnership Initiative in the Middle East and North Africa designed to promote intra-regional trade and also greater integration with U.S. and European markets. The president noted that when you take oil out of the picture, the Middle East with 400 million people exports about the same as Switzerland, with a population of 8 million.
Egypt in particular is staggering economically, and an economic meltdown would throw the country into further turmoil, opening the door to dangerous populism and extremism. Since the protests began in Cairo in January, tourism receipts and foreign exchange reserves have declined significantly and are expected to continue doing so throughout this year. The economy contracted 7 percent between January and March; although it has now stabilized, it is expected to grow by only about 1 percent this year—not a catastrophe, but well below recent growth rates of 5-8 percent and certainly below what is needed to put a dent in its high level of unemployment.
Promoting economic reform, trade, and investment in Egypt—along the lines of what the United States did in Eastern Europe after the fall of the Berlin Wall—are certainly worthy goals, but will face enormous challenges. Egypt had been pursuing economic reforms, at the urging of U.S. officials, for the past several years, with some success. However, the gains of those reforms went largely to cronies associated with the Mubarak regime, causing great resentment. American economic advice is viewed with suspicion these days in Egypt. Obama’s economic pledges will also run up against resistance in Washington too. The mood in Congress is not supportive of new assistance programs and trade deals. There are already three free trade agreements languishing on the Hill (those with South Korea, Columbia, and Panama); Obama did not mention renewing efforts at striking a free trade agreement with Egypt—that seems not to be in the political cards right now. Making the new trade initiatives more than rhetorical will be tough. The uncertainty around what type of new government might emerge in Egypt does not help matters. The recent protests in front of the U.S. Embassy by extremist groups like Islamic Jihad (which assassinated President Anwar Sadat in 1981), demanding the release of Sheikh Omar Abdel Rahman, the radical cleric imprisoned in New York for the first World Trade Center bombing, will likely give some policy makers in Washington pause. However, a few billion dollars to help stabilize Egypt’s economy is a price well paid to avoid the rise of radicalism and bolster the forces of moderation and democracy.