Tag: mohamed morsi

Nothing New on the Egyptian Front?

Four months after the military takeover in Egypt, the country’s economy is still a train wreck. With growth well below government forecasts, the budget deficit in 2013/2014 may get to 15 percent of GDP, bringing Egypt into truly dangerous territory, unless the inflow of aid from the Gulf countries continues indefinitely. And instead of reforms, there are discussions of a new stimulus plan, worth $3.6 billion.

Nor are there many reasons for optimism in the political arena. Mohamed Morsi appeared in court on Monday, charged with inciting violence and murder. If convicted, he can face the death penalty. Unsurprisingly, the trial, alongside with the ongoing crackdown on the Muslim Brotherhood, has fostered further violent protests in Cairo.

However, if instead of following the news, one listened to U.S. officials, one could not avoid the impression that everything is going swimmingly. Today’s Washington Post has a brilliant editorial describing the state of denial in the administration:

Not surprisingly, a Freedom House report released Monday concludes that “there has been virtually no substantive progress toward democracy … since the July 3 coup,” despite the military regime’s supposed “road map.” But that’s not how Secretary of State John F. Kerry sees it. “The road map is being carried out to the best of our perception,” he pronounced during a quick trip to Cairo on Sunday. A liberal constitution and elections? “All of that is, in fact, moving down the road map in the direction that everybody has been hoping for.”

Egypt’s Fall Down the Dark Hole

The ongoing events in Egypt are an unspeakable human tragedy. With yesterday’s death toll of 525 and rising violence in major Egyptian cities, the chances of a return towards anything resembling normalcy are very slim. The Muslim Brotherhood deserves a significant portion of the blame-–mostly for its complete failure in governing the country prior to the coup and also because their willful effort to be seen as martyrs in the aftermath of the military takeover. However, it is the military junta running the country that is now the single biggest factor driving the country towards a catastrophe.

The fact that the military has shut down the normal political process and proceeded with an extensive crackdown both against the leadership of the Brotherhood and its supporters, has created incentives for the rise in politically motivated violence and, potentially, terrorism. Princeton University economist Alan Krueger–author of What Makes A Terrorist, a book investigating the factors fostering political violence and terrorism–argued that

[t]errorists and their organisations seek to make a political statement; terrorists arise when there are severe political grievances with no alternatives for pursing those grievances.

This account describes perfectly the escalation of violence in Egypt after the military coup. Unfortunately, it is not clear that there is an easy way back. Ideally, one would hope that the Egyptian secular liberals engage with the Brotherhood, that the military relinquish its hold to power, lift the curfew, and renounce further repression, and that the Brotherhood and its various factions steer away from violence. Yet the probability of the simultaneous occurrence of all these events is rather small.

It is important to stress that the West has been complicit in the build-up of the current situation. Without a continual inflow of US military assistance (roughly $70 billion since the country’s independence), the Egyptian military would have hardly grown to be the unaccountable and opaque organization it is, controlling a large part of the Egyptian economy and effectively calling the shots in Egypt’s politics.

Alas, the behavior of Western policymakers in the aftermath of the coup has been equally embarrassing – notwithstanding the cancellation of joint military exercises with Egypt that President Obama announced today. Douglas Carswell, a member of the UK’s House of Commons, wrote an excellent blog post on the subject yesterday. He concludes by saying that

[b]y equivocating about the overthrow of Morsi (the US State Department won’t even call it a coup), Western governments seem to be doing all they can to validate the Brotherhood’s script. The more that we buddy up to the generals in Cairo, the further we legitimise the world view of people like Morsi.

Where is the principled opposition to military takeovers in London and Washington? Where is the condemnation of the treatment of Egypt’s democratically elected leader?  Where is the loud, and uncompromising condemnation of this morning’s killings?

Perhaps this is what happens when we leave it to career diplomats to determine foreign policy.  Equivocation and drift.  It does not do us – or Egypt – any favours.

Egypt’s Vanishing Currency Black Markets

Despite escalating tensions between Egypt’s new military-backed government and supporters of ousted president Mohammed Morsi, there is at least one positive development coming out of the Land of the Nile. Yes, at long last, some semblance of stability appears to be returning to Egypt’s economy.

After the ouster of President Hosni Mubarak in 2011, the Egyptian economy took a turn for the worse. In particular, the Egyptian pound began to slide shortly after Morsi and his Muslim Brotherhood-backed government took power, sparking the development of a black market for foreign currency. The accompanying chart tells the tale: the official and black-market EGP/USD exchange rates began to diverge sharply in late 2012. In recent weeks, however, they have converged.

Recent currency auctions by the central bank, coupled with improved expectations about the country’s economic prospects, have begun to buoy the struggling pound. Indeed, the black-market exchange rate is now 7.13 EGP/USD, very close to the official rate of 7.00 EGP/USD. So, with Morsi, the black market appeared, and with the military’s re-entry, the black market has all but vanished.

The Egyptian stock market is echoing the confident sentiments displayed by the foreign exchange markets (see the accompanying chart). But, it remains to be seen if this newfound confidence in the Egyptian economy will be sustained.

The Muslim Brotherhood’s Legacy: Controls, Shortages and Inflation

The Muslim Brotherhood and President Morsi never had a credible plan for the Egyptian economy. Indeed, I doubt that the Brotherhood’s leaders know the meaning of the word “plan”. Over the past year, economic conditions in Egypt have gone from bad to worse. And, it seems Morsi’s brief tenure as president will likely be remembered largely for its shameful economic record – one marred by a decline in GDP growth, a reduction in foreign reserves, and a sharp increase in unemployment.

 

Black markets have also been a hallmark of the Muslim Brotherhood’s economic legacy. Price and capital controls have caused shortages and a substantial slide in the value of the Egyptian pound. In consequence, Egyptians have watched inflation destroy their standard of living. Additionally, controls have delivered shortages of foreign exchange and many goods, like gasoline. In the face of the Brotherhood’s wrongheaded economic policies, official inflation and price statistics took leave of reality, and the black market quickly became a source of material support that the Muslim Brotherhood’s government could not provide.

 

Yes, as the accompanying charts illustrate, the story of a failing Egyptian economy is the story of a troubled Egyptian pound – and of the inflation troubles that accompanied it. Indeed, as of July 1, 2013 (shortly before before Morsi’s ouster), Egypt’s annual inflation rate was 27.1 percent.

 

 

 

These trends have proven fatal for Morsi and the Brotherhood. While Morsi’s final hours were filled by lectures on “constitutional legitimacy”, Egyptians weren’t listening – they were preoccupied with a plunging pound and an inflation rate that is over three times higher than the official rate. Morsi and the Muslim Brotherhood’s policies, of course, contributed mightily to the implosion of the Egyptian economy. In the final analysis, the Egyptian people have taught Morsi and the Muslim Brotherhood a harsh lesson: bread is more important than ideas.

Egypt’s Transition: The Generals Take Over

Following its 48-hour ultimatum, it is expected that the Egyptian military will proceed any moment with its plan to suspend the constitution, dissolve the parliament, and put in place an interim caretaker government. The reported travel ban imposed on President Mohamed Morsi and other Muslim Brotherhood officials seems only a first step.

President Morsi has been a bad leader and it will be heartening to see him go. Still, even if the transfer of power is peaceful, the military solution is a bad one. One hopes that the events lead U.S. policymakers to reconsider their commitment to Egypt’s military–after all,  American military aid, currently amounting to about $1.3 billion annually, has propped-up the growth of Egypt’s bloated military complex, which might currently control up to 40 percent of the country’s economy.

Most importantly, the military acting as a deus ex machina whenever things take a bad turn sets a terrible precedent for the future of the Egyptian democracy. To whom will the future democratically elected leaders of the country be accountable–voters or the generals?

And even if it is only temporary, a rule by the military–or rule by an interim caretaking government–will inexorably lead to reform paralysis. For months after February 2011, the Supreme Council of the Armed Forces (SCAF) was effectively running the country, without any remotely impressive results. The country is in a dire economic situation, requiring an urgent fiscal adjustment and deep structural reforms. Neither the military nor the interim government will have the mandate to pursue such reforms. Even if adopted, economic measures introduced without a popular mandate will be easily reversible.

While unsavory and inept, the presidency of Mr. Morsi and the government of Prime Minister Hisham Qandil had at least some claim to democratic legitimacy. An overhaul of the country’s constitutional order–which is what the military is effectively doing–means a return to the situation two years ago. A continuation of the constitutional status quo, however unsatisfying but perfectible through the democratic process, is almost certainly preferable to yet another convoluted discussion about the country’s constitution under the auspices of an opaque military.

A general lesson from post-communist transitions is that countries in which the political elites were able to make credible commitments to pro-market reforms and limited government early-on fared much better than those that became trapped in protracted power struggles. Egypt now risks ending up in the latter category.

It is a disappointment that Egypt’s political crisis is unlikely to result in a cross-party agreement to shorten Mr. Morsi’s mandate, bring forward the presidential and Shura elections, and set a firm date for the election to the Lower House. A second big-bang political and constitutional change since 2011, overseen by the SCAF, heralds prolonged instability and government dysfunction. It is unlikely that the Egyptians can afford it.

Whither Egypt?

On Sunday, one year since President Morsi’s arrival in office, Egypt saw what might have been the largest protests in the history of the country. The anti-Morsi ‘Rebel’ campaign claims they have collected over 22 million signatures asking for his departure, and they are asking the Egyptian head of state to resign by 5 p.m. tomorrow.

The current events were predictable. There was a long build-up of popular dissatisfaction with the direction Mr. Morsi and his Freedom and Justice Party (FJP) had taken the country. Little has been done to reduce the deficit, restore robust growth and tackle the country’s debilitating subsidy problem. To the extent to which the events of the Arab Spring were driven by people’s desire to access economic opportunity, Mr. Morsi’s presidency has been a lost year.

Politically, Mr. Morsi’s presidency has been marked with a disdain for civil society, and few signs of a genuine commitment to limited, constitutional, and democratic political order. So is it time for Mr. Morsi to go, as many in Egypt seem to believe?

Though we may agree that Mr. Morsi is an inept leader, what are the alternatives to the continuation of his presidency? Given the severity of the country’s economic problems, and the existing political uncertainty, a protracted transition – with a likely involvement of the Supreme Council of the Armed Forces – might be even worse than the status quo. The journalist Farah H. Hope, who runs the blog Rebel Economy, says:

While politically his exit may be required by the millions who want him out, economically, the last thing Egypt needs is another period of chaos, uncertainty and confusion. Investors and Egyptians alike are looking for rule of law and order, not another limbo period.

However that may be, Mr. Morsi’s political mandate is tenuous. If he goes, it is imperative that the transition is orderly and planned. Setting a firm early date of the parliamentary election – which has already been postponed – would be a good place to start, accompanied by a broad agreement to shorten Mr. Morsi’s presidency and convene an early presidential election.

Although it looks like Egypt is quickly running out of good options, it may well be that the current unrest is exactly the impetus needed for political elites to start addressing the country’s economic problems. The sooner we see credible reformers fixing the country’s public finance problem and removing barriers to trade, entrepreneurship and innovation, the better.