Well, at least President Morsi knows when to retreat. Last week, basking in the glow of having helped broker a cease-fire in Gaza, Morsi issued a decree that in essence gave Egypt’s president power over the judiciary. But in the face of growing street protests, he now appears to be backpedaling away from that brazen push for broad new powers.
Morsi’s camp argued that this decree was just a stop-gap measure to allow the transition to proceed more smoothly and ensure that the constitution gets written. But history has few examples of leaders grabbing power in the course of a revolution only to hand it over to someone else “later.” Egyptians rightly took to the streets to protest against the coming of a new pharaoh. Some carried posters of Morsi’s face morphed with that of Mubarak.
Faced with growing street protests, a slew of resignations from senior government officials, a drop of nearly 10 percent in the stock market, and a looming strike from the judiciary, Morsi prudently seems to have compromised. Today he agreed to continued judicial oversight over most matters although he did retain the right to stop the judiciary from dissolving parliament’s upper house as well as the constitutional assembly. However, uncertainty over what, exactly, the decree now means still remains.
The constitutional assembly, dominated by the Muslim Brotherhood, has suffered significant attrition as about 25 percent of members—mostly progressives—have resigned in protest at the way the Islamists are dominating the process. Along with members, the assembly has been losing credibility; rumors abound that the judiciary was planning on dissolving it. But Morsi must realize that he can’t just decree stability. Indeed, undermining the country’s existing rule of law could be the most destabilizing path.
While the street protests undoubtedly got Morsi’s attention, I can’t help but wonder how much of an influence raw economics has played in this evolution of events. An IMF team was in Cairo over the past few weeks trying to wrap up the final details on a much-needed $4.8 billion loan. As I’ve previously noted, Egypt has experienced a worrisome deterioration in foreign currency reserves and faces a balance of payments crisis. Recent commitments from Qatar and Turkey have helped stabilize the country’s difficult financial situation, but its current level of reserves at $15.5 billion is still down by more than half since the end of 2010. The IMF loan is important not only because it’s a sizable package but also because its seal of approval can unlock other capital flows. The loan had been previously held up for reasons that include political instability.
At the beginning of last week, Egypt announced that it had tentatively secured the long-discussed IMF loan—subject to final approval from the IMF board on December 19. Morsi’s power grab led to worries that the accompanying political instability could potentially derail the loan, although Ashraf El-Arabi, Egypt’s minister of planning and international cooperation, insisted this wouldn’t be the case. But investors clearly didn’t like the trend. Indeed, the Wall Street Journal called Sunday’s 9.6 percent drop in the EGX-30 Index the “biggest daily decline in Egyptian shares since the immediate aftermath of the revolution that toppled former President Hosni Mubarak in February 2011.”
Morsi faces an uphill battle: yes, the sooner the country has a credible constitution and stable government, the sooner investors will see Egypt as open for business, and tourists will be tempted back. I was in Aswan and Luxor earlier this month and can attest to how empty the hotels are. After reaching a peak of 14 million visitors in 2010, the tourism industry collapsed in 2011 and has yet to recover.
Part of the IMF agreement for the loan will be reform of the country’s unsustainably expensive subsidies, a process that is never easy (look at how riots against subsidy reform have rattled Nigeria and Jordan recently.) Having garnered 51.7 percent of the vote in June’s presidential election (versus the military’s candidate Ahmed Shafiq’s 48.3 percent), Morsi hardly has a broad popular mandate. He clearly overplayed his hand this time around. Let’s hope that he figures out how to use his political capital more wisely going forward.