Is the Egyptian state facing bankruptcy?

During the first weeks of the Egyptian revolution a lot was said and written about the historic transformation undertaken by the Egyptian youth who defied fear and committed to [political] change. It was said, for example, that the revolution was led by young people far removed from the ideologies or the politicization of traditional parties, and it was also claimed that political forces were no longer holding the reins of power and would now face internal upheaval. Likewise, a lot was written about the “aspirations” of the revolution, about the need to purge institutions from the remnants of the former regime, and some even went so far as to say that what happened in Egypt would change the face of the region. As for questions about the military carrying out an internal coup, the danger of the Islamists – particularly the Muslim Brotherhood – coming to power, or even the difficulty of economic and security challenges following the collapse of the Mubarak regime – which was moderate when it came to foreign policy – these were all downplayed, and anyone who asked such questions was accused of “living in the past”, for these were the scarecrows of the former regime, and “revolutionary” Egypt would be different! Those who know Egyptian politics well are now declaring that these concerns and challenges are real, rather than illusions or scare tactics. When we consider Egypt’s political, economic and security situation, we find that the country is facing a critical juncture which threatens its long term stability. The conflict between the Muslim Brotherhood and their rivals over the monopoly of power has become clear; the Brotherhood won a majority in the People’s Assembly and Shura Council elections, and have – so far – put forward two candidates for the presidency having previously pledged not to compete for this position. The Brotherhood, along with the Supreme Council of the Armed Forces [SCAF], are also conducting careful maneuvers around the constituent assembly. As for the personalities and individuals who filled Tahrir Square a year ago, heralding their revolution with the slogan “the flower blooms in Egypt”, they seem to only represent a minority in a society where the Islamists and former military figures are competing for the presidency. If you think that the current political crisis is normal in such circumstances, and that Egypt must pass through a phase of instability in order to achieve the aims of its revolution, then think again. The Egyptian economy is witnessing a resounding decline that may impact upon future growth for decades, in a country already suffering from poverty, illiteracy, poor production outputs, and the proliferation of bureaucratic corruption. The Central Bank of Egypt announced that external reserves have declined to less than $15 billion, i.e. less than the minimum value of three months of imports, according to IMF conditions. This is not all; Egypt has lost around $20 billion over the last 14 months, whereby the cash liquidity of Egyptian banks has declined from $30 billion before the revolution to $9 billion today, due to the mass transferal of deposits. The government has had to resort to borrowing at the upper limits that local banks are able to provide. Currently, the trade balance deficit for the past year exceeds $10 billion dollars, and in the tourism sector alone Egypt has lost $4 billion, so we can say that the Egyptian budget deficit (in addition to domestic and foreign loans) amounts to 76 percent of the country’s GDP. What do these figures mean for the Egyptian revolution? According to an article by the economist Mohsin Khan – of the Peterson Institute for International Economics in Washington – the economic reforms introduced by the Mubarak regime in 2004 produced steady growth until 2010, and achieved reserves of over $36 billion. These achievements are now about to collapse whereby the decline in foreign investment in important sectors such as tourism, oil and telecommunications, alongside the increase in the trade balance deficit, could push Egypt towards bankruptcy if indicators continue as they are. Khan argues that Egyptian politicians have perpetuated the status quo and have failed to confront the Egyptian citizens with the facts of the crisis, instead opting to buy time. But Egypt is on the verge of an economic crisis that could ravage its currency and eliminate its access to foreign loans, especially with the inflammatory language used by the Muslim Brotherhood – such as Khairat al-Shatar’s recent statements – towards the IMF. As Mohsin Khan points out, Egypt will first need political stability, then $15 billion in the form of loans, grants and foreign investments in order to correct its economic course. Otherwise, international institutions warn that the Egyptian pound, which has lost 4 percent of its value so far, will be liable to lose more than 25 percent by the end of the year. Add to this the decline in value of the government Sukuk that was issued recently, which threatens to bring the currency value down by as much as 45 percent if current indicators continue as they are. (Mohsin Khan, “Egypt’s Broken Economy”, Project Syndicate, 29 March 2012) Some might say that what is happening in Egypt will be resolved in time. When a new president is elected and a new constitution is drafted the Muslim Brotherhood, for example, will be able to put their pragmatic mark – as they claim – on Egypt’s economic and security situation. In my opinion, this is unlikely. The experiences of the last year show that the Muslim Brotherhood’s party is still living in the past, and reveal the bankruptcy of the Egyptian elite, culturally and intellectually, and the shallow nature of the Brotherhood’s vision as it moves to secure power. As for those who are upset by the criticism of the Egyptian revolution – for emotional and ideological reasons – they should remind themselves that per capita income in post-revolution Iran remains – till this day – lower than it was 33 years ago. There may come a time when some people may excuse the corruption of the Mubarak era, and view the bequeathing of their country to radicals who do not have any vision to modernize their homeland as a crime. If the advocates of the Egyptian revolution are serious about reforming the Egyptian reality, they should face the facts and not turn a blind eye to them. Egypt is a poor country; it has an economy dependent on government support, which exceeds the economy’s ability to compete. Simply put, if you have free university education, free health care, subsidies for fuel and bread, and factories that do not produce, you will have a damaged economy and failed services, especially if you do not even have the natural resources – oil and gas revenue – to compensate for the disparity in the budget deficit. In 1964 a military coup took place in Brazil, a country suffering from a population explosion, increasing rates of poverty and a decline in resources. The military tried to portray what they had done as a “popular revolution”, but a few months later they realized that the problems of administering the state, especially the economic failures, required sacrifices and strict implementation. Hence the focus turned to reforming the economy through liberalization, which led to the privatization of many public facilities, the closure of some struggling factories, and reductions in government spending, including the number of government employees. In a few years the Brazilian economy witnessed a quantum leap, with many observers now calling it the “Brazilian miracle”, this was crowned with the rise of the Brazilian football team in the 1970s, even prompting the government to proclaim the slogan: “Brazil, love it or leave it” But the military, who became intoxicated by the initial results, began to compete for the cake of foreign investment, and in addition to this there was the increasing voracity of the government which was focusing on expenditure in order to buy the satisfaction of the poor majority with support projects, in order to avoid its electoral dues. This brought the country to a state of serious debt. The Brazilian economy was subjected to a collapse in the early 1980s, in what subsequently became known as the “Latin American debt crisis”. Brazil lost a decade between 1982 and 1992, before being able to revitalize its economy thanks to the parties that came to the fore over the past two decades. The country pursued policies of economic reform focusing on a market economy and improving opportunities for economic competition. The left-wing leader Lula da Silva, who had spent three decades arguing against a market economy, changed his position after assuming the presidency in 2003 to support the economic policies of his predecessor, arguing that the priority was economic reform. This year, Brazil replaced Britain as the fifth largest economic power in the world. Doesn’t this experience remind us of what Egypt is going through today, in terms of political and economic difficulties?! Perhaps the difference is that Brazil’s politicians were ready to face their citizens with the reality of the crisis, and the economic sacrifices that had to be taken. In Egypt, as pointed out by the veteran writer Ali Salem in his recent article in this newspaper, politicians’ activities are limited by their “talent for non-achievement”. In reality, the danger in Egypt does not come from economic bankruptcy alone; the Egyptians have always managed to safely navigate through historic lean years, rather the danger comes from the bankruptcy of the ideology and culture of the “Tahrir Square revolution”. All the revolution has done so far is swap a bad regime for a group of radicals who are in reality worse and more dangerous than the former regime.