Steven A. Cook

From the Potomac to the Euphrates

Cook examines developments in the Middle East and their resonance in Washington.

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Is Egypt Too Big To Fail?

by Steven A. Cook
February 7, 2013

A man stands outside an exchange bureau in Cairo December 30, 2012 (Asmaa Waguih/Courtesy Reuters).


Egypt’s official Middle East News Agency reported on Tuesday that the country’s foreign reserves have dropped to $13.6 billion, a little more than a billion dollars below the Central Bank’s “critical minimum” of foreign reserves.  Egypt now has barely enough money to cover imports such as energy and food through April.  Given the dire state of Egyptian finances—a development that many have predicted for the better part of the last two years—observers have been asking, “what is the Muslim Brotherhood’s economic strategy?”  Members of the organization and its Freedom and Justice Party respond with a copy of their al Nahda (Renaissance) agenda, but it does not help.  The centerpiece of the Brothers’ program for Egypt’s rebirth is a confused document combining tropes to economic justice while expressing fealty to the private market.  Anyway, it is a long-term plan that does not address the current foreign reserves crisis.  From the outside, it seems that the Brotherhood’s short-term strategy to deal with the country’s economic ills  is fairly straight-forward:  “Egypt is too big to fail and the international community owes us,” which are actually two sides of the same coin.  This is entirely accurate, but as with everything in Egypt, things are always more complicated.

Within a few months of the January 25 uprising, the IMF tabled a draft agreement that the Supreme Council of the Armed Forces decided not to sign.  Their official reason was that it was unwise for Egypt to take on any additional debt, which at the time was $190 billion (internal and external), but the real reasons were political:  Recognizing Egypt’s difficult experience with the IMF, the officers didn’t want the political hit for agreeing to a deal with one of the Egyptian opposition’s  favorite bogeyman.  For the SCAF it was better for their own prestige and continued place in the political system to push the perils of an IMF agreement onto civilian leaders.  Morsi wants to do a deal, but he does not have the consensus he needs.  It is not surprising that the Left, revolutionaries, and a variety of other voices oppose the Fund, but even within the Muslim Brotherhood’s own Freedom and Justice party, there is considerable opposition.  The IMF requires that the Egyptian government take certain steps regarding tax policy and, importantly, subsidies on energy in order to make the deal happen.  Yet “conditions” and “aid conditionality” are the kryptonite of Egyptian politics, conjuring the 1876 joint British and French Commission on Public Debt, making strongmen look weak, and offending Egyptians’ nationalist sensibilities.

Members of the FJP do not want to go out on the hustings—elections will likely be held in late April or May—and have to defend an agreement with the IMF, preferring to shunt it off until after a new parliament is convened.  The problem is, based on almost everyone’s estimates, the Egyptians will run out of money by then.  In response, Morsi has done…well…nothing.   He seems to be betting on the fact that the consequences of economic collapse are so great that Fund officials and other international donors will release cash to Cairo with few commitments from the Egyptian government to pursue a rational economic policy in return.  Morsi may be onto something here:  If he hangs tough, he may get the economic assistance without compromising his or the FJP’s political position.  The risks are, of course, that Morsi will preside over further economic misery while waiting for IMF officials to blink, which might not happen.  Word is that Christine LaGarde is playing her own tough game with the Egyptians.

Agreement with the IMF or no agreement with the IMF,  the Egyptian government believes that financial resources will inevitably flow to Cairo anyway.  Why?  The international community has a moral responsibility to come to Egypt’s aid.  One could actually make the case that a failed Egypt will have such far-reaching consequences for the region and beyond that yes, there is a moral imperative to forestalling this outcome.  The Egyptians aren’t making that argument however.  Instead, they argue that countries like the United States that once supported Hosni Mubarak are morally obligated to aid Egypt in order to make amends.  This flight of fancy is not actually original to the Muslim Brothers.   Ahmed Maher of the April 6th Movement first floated the idea in early April  2011 when he told a group of Beltway policy analysts that he welcomed continued American aid to Egypt—the terms of which the “revolution” would dictate—as a form of penance for Washington’s patronage of Hosni Mubarak.

Egypt will likely get the aid it needs to keep the country afloat, but the way they have gone about securing this assistance suggests a misplaced arrogance.  There are many parties to blame for Egypt’s current economic situation, but the Egyptians should dispense with their implicit “give it to us or else” approach.  Whether they like it or not, donors are not going to hand over cash without any terms.  With foreign reserves running so low, now is not the time to play chicken with the international community.

Post a Comment 6 Comments

  • Posted by Imran Riffat

    Morsi’s track record, thus far, has been one of failure because he has let the people of Egypt down by his lack of effort to be the President of all Egyptians. He has arrogantly promoted the agenda of the Brotherhood which is not necessarily the right roadmap for a country that has just overthrown a dictator and now wants to be a stable democracy.

  • Posted by Mostafa

    What about the Qataris? They keep throwing small life lines but they seem to have a pretty vested interest in keeping things stable (from a regional power perspective, especially given the average Egyptians views on them that will likely not bode well if /when MB ar not in power).. Given their, and Saudis, almost ridiculous feign reserves and budget surpluses – would they not intervene?

    Be the heroes in comparison to the evil IMF, promote their image as benefactors to the Egyptian state and potentially shed some of that hostility the Egyptian population (particularly opposition) is feeling towards them..

  • Posted by Issandr El Amrani

    Hey, you stole my line!

    And that was written during the very late Mubarak era. The same principles are in operation now – the too-big-to-fail mentality, a US/EU relationship with Egypt where the bottom line in Israel, and the high likelihood of a rescue.

    As in my piece then, whether the rescue comes or not, the government may not able to remain stable. Count me among those who believe that it was not neoliberal policies that brought down Mubarak, but a moral crisis of the regime. We are beginning to see similar sign of moral crisis, with much more dire consequences for the country, as the economic context is much, much worse.

  • Posted by cuneyt

    This type of thinking is deeply offensive to any decent person: “he welcomed continued American aid to Egypt—the terms of which the “revolution” would dictate—as a form of penance for Washington’s patronage of Hosni Mubarak.”

    You live or die by your own virtue, otherwise as Ataturk said


    which roughly translates as “those nations that get used to living in comfort without sweating for it first lose their pride, then their future and eventually their sovereignty”.

  • Posted by Raja M. Ali Saleem

    Can we assume that the Egyptian leaders, like many leaders of new democracies, find it difficult to deal with all the different crises at once and are making mistakes?

    Why do you think Morsi behaved responsibly during the last year Gaza crisis, if not because of dire economic situation of Egypt? Does anyone remember how important Palestine issue is for MB and Morsi and their supporters/voters? Morsi wanted to do the IMF deal last year but was overtaken by events, some of which were his own mistakes.

    Or we have to start with the position that Islamists/Egyptians are lazy, can’t stand on their feet, disingenuous, manipulative, think-world-owes-them-a-living? I think I heard something similar before?

  • Posted by Sufyan Wajdi

    Not external arrogance but internal arrogance. The depreciation of the pound has already hit poor and middle class Egyptians hard and millions have lost their jobs. The effects are worse than any potential IMF conditions given that Egypt imports most of it food and families spend over 60% of their income on food. The real problem is that the brotherhood have 2 conflicting objectives. Consolidaton of power does not mix with economic growth. So far, politics has been taking priority over economics and that is why we see again state repression appearing again. Prime example being forcing dual nationality Egyptians to sell their investments in Sinia while paying lip service to tourism.

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