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Bread protest in Egypt

Egypt’s economy has been deteriorating for months, but the latest indicators suggest that the country may be headed for a much more serious downturn. On December 21, Moody's Investors Service downgraded Egypt's government bond ratings by one notch to B2 from B1 and has also placed the rating on review for further possible downgrade. This news comes as no surprise given the current political instability as well as the absence of a clear roadmap for the remainder of the transitional period. It is common knowledge that predictability is the key to any investment decisions. The uncertainty of Egypt’s political future and its unpredictable institutional framework are a serious impediment to attracting foreign direct investment and, consequently, to economic growth.

In addition to political repression and recurrent human rights violation, the economic suffering of Egyptians and their frustration with inequality in the distribution of resources and opportunities were a fundamental catalyst of the January revolution that demanded the fall of the regime and ended by ousting Hosni Mubarak.

Eleven months after the revolution, the stagnant economy is still contributing to unrest in the streets, but the economic dimension of the uprisings remains to a large extent absent from the public debate. Although Egypt’s economic problems have been widely acknowledged by successive governments, by political parties and by Egyptians themselves, very little is being said about the economy’s unsteady trajectory during the transition and the prospects for recovery and growth over the long-run. Detailed economic programs are absent from the majority of new and old political parties’ manifestos. Apart from large and appealing headlines proclaiming the need for combating inflation, unemployment and class inequality, none of them presents a pragmatic and detailed program for improving macroeconomic stability and bringing growth, social cohesion and equality to Egyptian society. 

The third and final round of elections for the People’s Assembly will take start on January 4, but the preliminary results indicate that the next parliament will be dominated by the Islamist parties led by the Muslim Brotherhood’s Freedom Justice and Freedom Party (JFP). At first sight, one might believe that the economic program proposed by the FJP is generally free market-oriented. The party does support the development of the private sector and engagement with the global economy. Nevertheless, the FJP has not yet presented a concrete program outlining how they intend to put theory into practice. Ambiguities in the FJP’s platform raise a number of questions, particularly in the banking sector, where the party’s intentions remain uncertain. For example, it is not clear what will be the future of non-Islamic banks (an important repository for foreign capital) or if they will be “gradually” phased out in favor of Islamic banks. But again, economic issues, in spite of the anxiety they cause, are pushed into the background.  Today’s debates revolve around politics, with the basic theme being dominated by the question of why there has been so little concrete change in Egypt, especially when compared to neighbour Tunisia, where post-authoritarian transition is progressing more smoothly. 

Unfortunately, Egypt does not have the luxury of ignoring an economic situation that has already been deteriorating for far too long. According to the Central Bank of Egypt, net international reserves had fallen to $USD 20 billion by the end of November 2011 (equivalent to 5 months of imports), down from $USD 34 billion before the revolution. Inflation is constantly high (9 percent in November), with food inflation rising into the double digits. The reversal of portfolio investments from net inflows of $12.2 billion into net outflows of $8.9 billion in January/September 2011, and the dramatic drop in FDI to US$ 375.5 million (from US$ 5.7 billion) during the same period last year are increasing the pressure on Egypt’s already strained balance of payment. 

Tourism activity and revenues have picked up slightly from the severe drop that followed the revolution. But another steep decline in tourism and in foreign reserves alongside a rise in an already high unemployment rate would only make matters worse.

So far, Egypt's government has been relying on local banks to finance its spending needs. But faced with a significant increase in domestic borrowing costs, the government has recently started to consider alternatives to decrease reliance on domestic funding. As a result, Egypt may resume negotiations over a previously rejected $3 billion IMF loan package. If an agreement can still be reached, external borrowing would help avoiding the crowding-out of the private sector and is likely to lessen the borrowing costs. 

At this point in time, it is clear that the significant political and economic challenges facing Egypt cannot be resolved overnight. But one thing is certain: if the government succeeds in overseeing Egypt’s transition and restore confidence in the economy, the revolution will have opened the door for Egypt to unleash its vast economic potential. Promoting greater inclusiveness and transparency while strengthening governance are all necessary conditions to leverage the country’s inherent strengths: a young population, a large domestic market and a privileged geographic position.
 
Hoda Youssef is a postdoctoral research associate at the Woodrow Wilson School of Princeton University. She holds a Ph.D. in Economics from Sciences Po Paris school. Her research work focuses on monetary and fiscal policy, and on the political economy of the MENA region, with a focus on Egypt. 
 
Anti-military Art

As an estimated 25,000 protesters rallied in Cairo on December 23 to condemn the military's violent suppression of peaceful demonstrations in recent weeks, it's clear that the Supreme Council of the Armed Forces (SCAF) can no longer claim to be a stabilizing force or legitimate steward of a democratic transition that is veering dangerously off course. Participants in the current protest in Tahrir Square, dubbed the "Friday of Regaining Honor," are voicing both outrage and repugnance with the military's heavy-handed and humiliating treatment of civilian protesters, captured in the iconic image of a young woman being stripped and dragged across the pavement. There is growing consensus within Egypt and at the highest levels of the U.S. State Department that the SCAF's most recent misstep has crossed a forbidden "red line."

Calls for toppling "Mushir" -- traditionally a term denoting respect for the commander-in-chief of the Egyptian military, but now laced with disdain for Field Marshal Tantawi -- have been resonating in Tahrir Square for months.  But increasingly, evidence of the military's deteriorating public image can be seen as well as heard. A museum's worth of derisive graffiti and "revolutionary art" has been generated on walls and in public spaces around Cairo, much of it targeting the SCAF. The political analyst Sultan Al Qassemi captured this particularly compelling collage of anti-military art, which makes for a damning visual referendum on the SCAF's handling of the transition. On the far right of the photo, a soldier and a police officer clasp hands in a display of solidarity above the caption, "The army and the police are one hand." The words are a warped and cynical echo of far-gone revolutionary slogans expressing unity and goodwill between the people and the military, which have long since been drowned out by demands for a return to civilian rule. Several of the pictures depict army personnel assaulting protesters, and a military officer is featured on a "wanted" poster at the upper left corner of the photo. Images of the faces of individual SCAF members including Tantawi express the now deafening demand for accountability at the highest levels of the military leadership. The writing on the wall isn't pretty, but the SCAF will need to face it sooner or ... not-so-later.

Mara Revkin is the assistant director of the Rafik Hariri Center for the Middle East and editor of EgyptSource. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Photo Credit: Sultan Al Qassemi

 

Egypt holiday

EgyptSource will be posting less frequently over the holidays until January 4.  Thanks for following EgyptSource and stay tuned for more coverage in the new year,

Mara Revkin
EgyptSource Editor

Egypt

Fast away the old year passes … not so with the demonstrations in Egypt.  The increasingly heated and diverse anti-military demonstrations in Cairo, Alexandria, and other cities are not likely to end soon because they express grievances that the Supreme Council of the Armed Forces (SCAF) has consistently refused to address and that are too important for demonstrators to give up on.

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Minister Fayza Aboul Naga

It's nice to remember that even in times of turmoil and violence, Egyptians can be relied on for their razor-sharp political satire. Although the debate over Egypt's new constitution has taken a back seat to more immediate concerns -- the clashes in Tahrir Square and a mind-bogglingly complex three-stage electoral marathon to elect the lower house of parliament -- a satirical proposal for the new charter was posted on the website Arabian Laws

It looks like the authors haven't made much progress toward completing the document, but the first three clauses poke fun at Minister of Planning and International Cooperation Fayza Aboul Naga, who has been a seemingly intractable fixture of Egypt's government since the Mubarak era. Appointed minister in 2001, Fayza has spent over a decade antagonizing two White House administrations over the policy U.S. assistance to Egyptian NGOs and has managed to survive a staggering number of cabinet shakeups. And she's not planning on retiring anytime soon, according to this comedic rendering of the new constitution:

Article 1:

The Arab Republic of Egypt is a state with a democratic system, based on citizenship, and the Egyptian people are a part of the Arab nation working toward achieving its comprehensive unity. And Faiza Abul Naga is the Minister of International Cooperation.

Article 2:

Islam is the religion of the state, and the Arabic language is its official language. The principles of Islamic law are the chief source of legislation. And Faiza Abul Naga is the Minister of International Cooperation.

Article 3:

Sovereignty is from the people only, and the people are the source of authority. The people practice this sovereignty and protect it, safeguarding national unity. And Faiza Abul Naga is the Minister of International Cooperation.

Translation courtesy of Tarek Radwan

Major General Abdel Moneim Kato has been making a lot of inflammatory statements lately, suggesting last week that protesters outside of the Cabinet should be "thrown into Hitler's ovens.” And this from a man who serves as advisor to the Egyptian military's Morale Affairs Department. No wonder the SCAF's recent moves have been so ethically suspect. 

On December 22, Kato again provoked a media firestorm by invoking international law to justify using violence against protesters, although he insisted that the military never fired live bullets at protesters outside of the Cabinet building and in Tahrir Square. Meanwhile, Egypt's chief forensic physician reported that 9 of the 13 people killed in the latest clashes died of gunshot wounds. 

According to Kato's reading of the Geneva Conventions and unspecified international treaties, Egyptian military forces under attack are entitled to respond with live fire. However, Kato said that soldiers never resorted to this option and instead used rocks -- the least possible force -- to prevent protesters from damaging public property. 

Not surprisingly, the legal justification for Kato's claim appears to be paper-thin. Legal analysts dispute Kato's interpretation of the convention, saying it applies to military forces fighting on battlefields -- not civilian protesters in city streets.

Although Article 51 of the United Nations Charter protects "the inherent right of individual or collective self-defense if an armed attack occurs against a Member of the United Nations," the International Court of Justice (ICJ) has since issued opinions drastically narrowing the scope of this clause. According to the ICJ's interpretation of Article 51 in a 2004 Advisory Opinion, armed forces can only invoke the right to self-defesce "in the case of armed attack by one State against another State." 

Unless Kato wants to argue that civilian protesters are the equivalent of territorial states now, he should probably stop talking about international law and instead devote his twisted rhetorical genius to explaining how 9 protesters in a morgue with gunshot wounds weren't killed by the military's bullets.

Mara Revkin is the assistant director of the Rafik Hariri Center for the Middle East and editor ofEgyptSource. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Image Credit: Cartoon by Carlos Latuff

 

Women

A Brotherhood spokesman announced that the group is looking for a candidate to back in the presidential election expected in June. Meanwhile, an official in the FJP-led Democratic Alliance revealed that the alliance will propose a new initiative in the first session of the People’s Assembly to shorten the period for drafting Egypt’s constitution, to ensure that the new charter is ratified before the presidential election.

PROTESTS:

1) The April 6 Youth Movment and other activist groups have called for a mass rally on Friday, dubbed the “Friday of Restoring Honor,” to demand the military hold accountable soldiers responsible for abuses committed during the clashes, including violence against women. [al-Arabiya, English, 12/22/2011] [Al-Shorouk, Arabic, 12/22/2011]

2) Most of the 13 people killed in recent days of anti-military clashes in Cairo died of gunshot wounds, and one died in detention after suffering head trauma, Egypt's chief forensic doctor reported on December 22. [The Daily News Egypt, English, 12/22/2011]

3) Military forces blocked al-Khalifa al-Maamoun Street to prevent an estimated 1,500 students from marching toward the Ministry of Defense. Student protesters denounced military rally and the ongoing violence in Cairo. [The Daily New Egypt, English, 12/22/2011]

SCAF/CABINET:

4) Major General Abdel Moneim Kato, an adviser to the Egyptian military's Morale Affairs Department, claimed that the armed forces are entitled to fire live bullets at protesters under international law. [Al-Masry al-Youm, English, 12/22/2011]

5) In a new communiqué, the SCAF reiterated its warning against a malicious plot to “bring the country down” through continued sit-ins, protests, and the destruction of public property. The statement also underlined the people’s right to peacefully protest without damaging utilities or public property. [Al-Ahram, English, 12/22/2011]

6) Prime Minister Kamal Ganzouri called for national dialogue to resolve the country's political crisis and pleaded for a two-month calm to restore security. [Al-Masry al-Youm, English, 12/22/2011]

7) Minister of Planning Fayza Aboul Naga slammed Secretary of State Hillary Clinton’s statement on women’s rights as “shocking,” saying that Egyptian women are capable of defending themselves and do not need “foreign voices” to demand their rights for them. [Al-Ahram, English, 12/22/2011]

ELECTIONS:

8) A Brotherhood spokesman announced that the group is looking for a candidate to back in the presidential election expected in June, and will not support any of the currently declared candidates, including Abdel Moneim Aboul-Fotouh, who was expelled from the Brotherhood in April after he defined the group’s official prohibition on members running for the presidency. [Al-Ahram, English, 12/22/2011]

9) The High Electoral Commission expects to release the official results of run-offs from the second phase of parliamentary elections. [Al-Masry al-Youm, English, 12/22/2011]

CONSTITUTION:

10) An official in the FJP-led Democratic Alliance revealed that the alliance will propose a new initiative in the first session of the People’s Assembly to shorten the period for drafting Egypt’s constitution, to ensure that the new charter is ratified before the presidential election expected in June. Wahid Abdul Magid, coordinator of the Democratic Alliance, said that holding the presidential election before a new constitution is written represents a major threat to Egypt and could reverse the gains of the revolution by giving the president absolute powers. [al-Youm al-Saba’a, Arabic, 12/22/2011]

Photo Credit: World Bulletin

The recent violence in Cairo and other parts of Egypt has sparked serious concerns about the direction of the country and the intentions of the Supreme Council of the Armed Forces. Not only does the lethal action the world has witnessed against unarmed demonstrators shift attention away from the electoral process and the political transition, but it further delays prospects for a recovery of Egypt’s economy—which is rapidly deteriorating. 

Egypt’s economy may face a severe crisis due to persistent street protests, strikes, capital flight, rising inflation, increased food prices, and unemployment. Tourism has tanked, factories have shut their doors, and anyone with a job is clamoring for higher wages. The country has been hemorrhaging foreign reserves, and Egypt may run out of dollars in a matter of months. Mahmoud Nasr, a senior army financial official, estimated that Egypt’s dollar reserves would plummet by one-third by the end of January—reaching a paltry $15 billion. An IMF official recently estimated that Egypt would likely run out of cash in two to three months, which could prompt panic, further devaluation of the Egyptian pound, and massive inflation. This cash flow problem amplifies underlying distortions that will only be resolved by significant fiscal reform and the revamping of subsidy policies. 

Buoyed by promises from Gulf countries of financial assistance, Egypt shunned loans offered by the IMF and the World Bank last June because—according to officials at the Ministry of Planning—they did not want to add additional debt burden and because conditions were “incompatible with Egypt’s national interest.” But as funds from its Gulf neighbors have not been forthcoming, Egypt will likely return to these financial institutions to renegotiate aid packages. This may help stem an acute crisis, but only as a stopgap measure with short-term benefits. Rather, what is needed is a long-term strategy—one that resuscitates the Egyptian economy in a sustainable and growth-oriented way, which will not emerge from wealthy Gulf cash transfers, loans from international lending institutions, or economic aid from Congress. The only solution is to unleash the dynamism, ingenuity, and entrepreneurial spirit of Egypt’s private sector—internationally, regionally, and domestically—to breathe life back into the country’s economy. 

Economic failure on Egypt’s path forward would mean a rise in radicalism, security threats, disruption of energy flows, and migration pressure—and is simply not an option. The United States needs to engage with newly elected leaders from all parties and build relationships in order to promote the principles of democratic inclusiveness and encourage the entrepreneurial spirit that will be essential for Egypt’s success.

While the actual policies of a Muslim Brotherhood-dominated parliament remain to be seen, the Freedom and Justice Party (FJP) has been forthcoming in support for a fairly liberal, free-market approach to Egypt’s economy. Its electoral platform advocates the kind of policies a Washington-based audience likes to read: economic freedom, enhanced global competition, rule of law to regulate economic transactions, institutional reform, and the centrality of the private sector. In fact, the FJP’s economic platform is far more developed than many of the neo-liberal secular parties (al-Ghad, the Free Egyptians,the Democratic Arab Nasserites, and al-Tagammu), many of which assert the need for social protections and more equitable wealth distribution but do not detail specific trade and investment policies. 

A healthy dose of skepticism may be warranted, however, since the FJP is in uncharted territory and has never been in the position of governing. Though well developed, their economic platform supports protectionist trade policies by insulating domestic industries from international competition and reducing the import of luxury goods. Given the party’s firm commitment to an equitable (re)distribution of resources and social justice, a critical question will be how the FJP envisions the government’s role in fulfilling these principles. Additionally, there is a growing fear that the demonstrated strength of the Salafi parties will prompt the FJP to move to more extreme positions on shari‘a-compliant tourism and social policies. The need to outflank the extremists may also manifest itself in populist policies to curry favor by creating new jobs, re-nationalizing industries, or increasing wages. Nour, the largest Salafi party, espouses a moderate economic liberalism, but its advisors note that shari‘a would prevent privatization of natural resources (e.g., water and gas). Their platform notes the necessity of tax reform, but does not specify what type of changes they would seek. What this will mean in practice will be seen only in the coming months. 

Given this context, the United States and Europe should rally all possible diplomatic and financial resources to encourage—and then help actualize—the promised market-oriented policies of these newly elected leaders. Yet in the current climate of austerity, aid packages from the United States and Europe will be extremely limited. Even so, opening trade flows and leveraging the power of the private sector are both realistic and key drivers of sustainable economic growth. Considerable gains can be realized through economic initiatives that promote trade, support new business growth, and encourage investment—not only for companies in the target countries in question, but in the United States and Europe as well. Foreign assistance can help resolve immediate financing, but the key to long-term growth and prosperity lies in mutually beneficial trade partnerships. Perhaps most importantly, the United States and the EU need to encourage the private sector—in the West and in Egypt—to identify barriers to trade and investment and to direct attention to specific economic sectors that could provide additional growth. It is the business community, and not the government, that will be best placed to make these choices and to inject a spirit of ingenuity and initiative into the economy.

In particular, the United States and the EU should expand Egypt’s access to American and European markets and engage Egypt on an individual basis in order to negotiate free trade agreements or deepen existing preferential trade arrangements. The existing Bilateral Investment Treaty with Egypt (signed in 1992) is sorely outdated as it excludes sectors that should be covered while also lacking core protections (e.g., intellectual property rights) that the United States now requires. Now is the time to update this treaty and to initiate more ambitious agreements that would pave the way for a more robust trading relationship. Recently, the EU announced it would begin free trade talks with Egypt, Morocco, and Tunisia, and the United States should follow suit.  Although the latter may be reticent to engage in negotiations while the political situation remains fluid, articulating these intentions and providing international support for Egypt’s economy is essential in order to reassure markets and offer encouragement to Egyptians that see little hope in their economic future.

Danya Greenfield is the Deputy Director of the Rafik Hariri Center for the Middle East at the Atlantic Council

This article is reprinted with permission from Sada. It can be accessed online at: www.carnegieendowment.org/sada © 2011, Carnegie Endowment for International Peace

Photo Credit: The Egyptian Gazette

 

In recent weeks, Egyptian headlines have been dominated by breathless coverage of the landmark parliamentary elections and the military's violent crackdown on protesters. With the media spotlight firmly riveted on the breweing political confrontation between Egypt's embattled military leaders and political forces hungry for a power transfer to civilians, a less visible but equally urgent economic crisis is festering beneath the surface. 

With an unemployment rate of 11.8 percent, a gaping budget deficit of around $134 billion dollars, and a 24 percent decrease in tourist arrivals this year, Egypt's economic forecast looks stormy with a chance of meltdown. Michael Singh warns that Egypt may be headed for "the dreaded combination known as stagflation," and Danya Greenfield predicts that Egypt could exhaust its Central Bank reserves within months. 

What's worse, Egypt's complementary political and economic crises are mutually reinforcing. As Singh argues, "The rise in prices and unemployment, combined with the economic slowdown, will only serve to deepen Egypt's already massive poverty and concomitant socioeconomic discontent, which will fuel further instability at a fragile political moment."

Egypt's interim government is finally waking up to the severity of the crisis, but taking all the wrong steps to fix it. Rather than accept offers of external assistance, Egyptian officials are stubbornly insisting on financing the deficit with domestic borrowing and panicked spending cuts. On December 20, Egypt's Finance Ministry hastily announced a series of new austerity measures, including the elimination of fuel subsidies for energy-intensive industries, a maximum wage for government employees, and a freeze on construction of federal buildings, aim to reduce Egypt's LE 134 billion budget eficit by LE 20 billion. Finance Minister Momtaz al-Said said that officials will also have to forgo some professional perks and luxuries: "We’ll stop buying expensive cars," he promised.  

Members of the Freedom and Justice Party

The Freedom and Justice Party (FJP) has rejected a proposal from several revolutionary groups calling for early presidential elections in January 2012. Meanwhile, the National Association for Change (NAC) is calling for nationwide protests to “regain Egypt’s dignity” following the “crime committed near the Cabinet by the military.”

PROTESTS:

1) Following a massive women’s march in Cairo on December 20 that drew over 20,000 protesters, hundreds of women rallied in Alexandria to protest acts of violence committed by military and security forces against women. [al-Ahram, English, 12/21/2011]

2) The National Association for Change (NAC) is calling for nationwide protests to “regain Egypt’s dignity” following the “crime committed near the Cabinet by the military.” [al-Ahram, English, 12/21/2011]

ELECTIONS:

3) Runoff voting is in progress for undecided individual candidacy run-offs as well as three districts (Menoufiya, Sohag and Beheira) voting for electoral lists after a court ruling ordered a postponement last week. The nine governorates holding run-offs will see competition between 47 candidates from the Freedom and Justice Party (FJP), 36 from the Salafi Nour Party, 3 from the Egyptian Bloc, 1 Wafd Party candidate and 10 independents.  According to semi-official figures released by the High Electoral Commission, the FJP won around 36 per cent of the party-list vote in the second round and the Nour Party secured 28 percent – The two Islamist parties are expected to win around 40 more seats in the runoff voting on December 21-22, out of the 180 total contested in the second round.  [al-Ahram, English, 12/21/2011] [al-Ahram, English, 12/21/2011]

4) The Freedom and Justice Party estimated relatively low turnout of 20 percent in the first day of voting in the runoff round, but predicted higher turnout on December 21. [al-Masry al-Youm, Arabic, 12/21/2011]

5) NDP-affiliated candidates performed better in the second round of voting than in the first, winning an estimated 16.8 percent of the seats as party-based candidates –running on the lists of the Conservative Party, the Egyptian Citizen Party, the National Egypt Party and the Democratic Peace Party. IN addition, 11 former NDP members are competing in the runoff round ending December 21. [al-Ahram, English, 12/21/2011]

6) Field Marshal Tantawi announced that the newly elected People’s Assembly will convene for its first session on January 23. [al-Youm al-Saba’a, Arabic, 12/21/2011]

ISLAMISTS

7) The Freedom and Justice Party (FJP) has rejected a proposal from several revolutionary groups calling for early presidential elections in January 2012. In a press release, the FJP claimed that the proposal “fails to appreciate the requirements approved by all parties in the Constitutional Declaration – which provides for elections of the People's Assembly, then the Shura Council [upper parliamentary house], drafting the new constitution, and finally the presidential elections.” [al-Ahram, English, 12/21/2011]

8) The Muslim Brotherhood announced that it will not participate in a planned demonstration “to reclaim Egypt’s dignity” this Friday, December 23, but called on the SCAF to apologize to the victims of recent violence and their families. [al-Masry al-Youm, Arabic, 12/21/2011]

9) A spokesman for the Salafi Nour Party said that the party would respect the peace treaty with Israel: "We are not against the (1979 peace) agreement but we say that Egypt is committed to the agreements signed by the previous governments," Al-Nour spokesman Yusri Hammad said in an interview with Israeli army radio. [al-Ahram, English, 12/21/2011]

10) Free Egyptians leader Naguib Sawiris said that liberal forces will not allow a new constitution to be drafted based on religion and urged Islamists to offer concessions to achieve consensus on the structure of Egypt's new charter. [al-Masry al-Youm, English, 12/21/2011]

U.S. POLICY:

11) State Department Spokeswoman Victoria Nuland rejected accusations that the United States is meddling in Egypt’s affairs. A spokesman for the Foreign Ministry said on December 20 that "Egypt does not accept any interference in its internal affairs," following a December 21 speech by Sec. of State Hillarty Clinton, in which she criticized the actions of Egyptian security forces as showing "systematic degradation" of women that "disgraces the state.” [Reuters, English, 12/21/2011] [al-Youm al-Saba’a, Arabic, 12/21/2011]

Photo Credit: Al-Ahram