Alarm as Wolf Nears Egypt’s Door
As Egypt’s Muslim Brotherhood government slides toward the financial cliff, what’s the right policy for the United States? That’s becoming an urgent question, as Egypt’s financial reserves decline and the country nears a new breaking point.
The economic facts are stark: Egypt’s official foreign currency reserves in February were $13.5 billion, which would cover a little less than three months of imports. But U.S. officials say that accessible, liquid reserves total only $6 billion to $7 billion. Already, imports are harder to find, including the raw materials needed by Egyptian manufacturers. The Egyptian stock market tumbled 5 percent early this week, sensing danger ahead.
And what is the government of President Mohamed Morsi doing to halt the economic decline? Not a lot. Morsi has been dithering for a year in negotiating a roughly $5 billion rescue package from the International Monetary Fund that Egypt desperately needs. He has stalled because he’s wary of public anger at the reforms the IMF demands, including reductions in subsidies, which take 25 percent of Egypt’s budget. (Debt service and public-sector employment account for another 50 percent.)
The wolf is two or three months from Egypt’s door, top U.S. officials believe. Meanwhile, the country is facing increasing political turmoil, with riots Tuesday in Port Said that left 50 wounded. Morsi’s government sent a new proposal to the IMF last week, but it may fall short of the IMF’s reform targets, further delaying action.
Welcome to Phase 2 of the Arab Spring, which we might call the “reality check.” The U.S. and its allies made a bet two years ago that if the Muslim Brotherhood took power in Egypt, it would be forced to deal with the responsibilities of governing — such as negotiating loans with the IMF and adopting economic reforms to woo investors. These economic realities are now enveloping Morsi. But so far he hasn’t shown the leadership the U.S. had hoped.
So what are American policy options, as Egypt nears the brink?