June 21, 2012

The court-mandated dissolution of parliament and a supplementary constitutional declaration by the Supreme Council of the Armed Forces (SCAF) has thrown Egypt’s transition into uncertainty and possible unrest. On June 21, the Rafik Hariri Center for the Middle East and the Project on Middle East Democracy (POMED) hosted a discussion on these alarming developments as the second round of presidential elections comes to a close.

Bahey El-Din Hassan, director of the Cairo Institute for Human Rights Studies; Mohsin Khan, senior fellow at the Hariri Center; and Stephen McInerney, executive director of POMED provided insights on the internal political and economic situation in Egypt as well as the US response. Hariri Center Director Michele Dunne moderated the conversation.

Dr. Dunne began by highlighting the dramatic turn of events over the past few weeks in Egypt, noting that the SCAF had single-handedly changed the sequence and timing of the country’s transition, mandating that the new constitution must be approved before new legislative elections can take place. This latest power-grab ensures that the military will remain above and beyond the country’s civilian authorities.

Moreover, the country’s elections commission has delayed announcing the results of the poll until June 24, amid reports that the military was amassing on roads outside Cairo and other major cities, perhaps in preparation for a possible announcement that Ahmed Shafiq is the winner. Dunne also noted additional reports speculating that the SCAF is in negotiations with the Muslim Brotherhood over its candidate, Mohammed Morsy, a worrying development that indicates that the election results may not be determined by the will of the voters.

The rules of the game have now changed, said Bahey El-Din Hassan; the recent developments meant that Egypt is no longer in transition but in fact backsliding. The SCAF’s powers are now greater than they previously were and there is no definite date for SCAF to cede power. Hassan pointed to direct negotiations between the SCAF and the Muslim Brotherhood over the last 16 months as the main culprit of the SCAF’s clamp down on the transition. He accused the Muslim Brotherhood of political opportunism, negotiating with the SCAF to further its own agenda while turning its back on the rest of the Egyptian political spectrum, especially non-Islamist parties and groups. After the Brotherhood achieved its parliamentary majority and then backtracked on a promise not to run a presidential candidate, the SCAF decided to move in on the process.

While noting that the decisions of the constitutional court on the legality of the parliament and the political isolation law were legally sound, Bahey El-Din Hassan explained that the process behind the decision was highly politicized. Moreover, this was followed by a worrying decree from the Minister of Justice allowing military police and intelligence to detain non-military persons without charge, which human rights defenders indicate is a hidden prelude to a declaration of martial law.  

Mohsin Khan discussed the dismal economic situation in the country, as well as the economic platforms of the two presidential candidates. Economic growth predictions for 2012, officially announced at 2%, are mostly exaggerated as economic observers indicate a growth of 1% would make for a “good year” in Egypt. According to most definitions of the term, Khan noted, Egypt is in recession. Official unemployment numbers, currently at 12.5 percent, do not take into account the underemployed or those erroneously labeled as “self-employed,” and in reality the rate is closer to 20-25 percent. As economic considerations and chronic unemployment were some of the underlying motivators for the revolution, providing jobs for Egyptians is a priority for any transitional government.

Egypt’s balance of payments and foreign exchange reserves are in a fast moving crisis. Significant decreases in remittances and tourism and a lack of foreign investment are contributing to an economic deficit exceeding $11 billion USD.  The central bank has lost over half of its foreign exchange reserves in a misguided and damaging attempt to stabilize the Egyptian pound.  The political turmoil further jeopardizes the economic situation as the new budget, submitted exactly one year ago, has to be approved by June 30– but with no parliament, the decision will now be left to the SCAF.  Furthermore, the budget is unrealistically optimistic as it is based on projected 4.5 percent annual growth. At the same time, the governor of the Central Bank of Egypt said he expects 2 percent annual growth this year, demonstrating little coherence in the government’s economic policies.

Khan noted that both presidential candidates have been engaged in populist campaign rhetoric promising to cut the deficit, cut taxes, set minimum wages, extend health benefits, cut inflation, provide zero interest loans to farmers, and other policy prescriptions that are popular with the public.  However, neither candidate has indicated how they plan to finance such huge government expenditures.

Dr. Khan pointed to Egypt’s over-reliance on Gulf countries to fill this revenue gap.  While Saudi Arabia did provide some $1.5 billion, Egypt would still need to generate $16 billion from abroad if they want to reach a sustainable level of reserves at $20 billion. Egypt cannot rely on a $10 billion promise from Qatar, which has not yet materialized and will most likely be contingent upon an IMF program.  Given the political uncertainty, the IMF would probably demand that all political players endorse an IMF plan as a pre-condition, which would require having a government in place.   Regardless of whether Egypt truly wants an IMF program, or whether the IMF will be willing to extend such a program, its inability to drive up revenues either domestically or from abroad will eventually force the country’s hand.  In the meanwhile, the IMF will likely stall and once talks resume the IMF could offer Egypt a larger sum than the initial $3.2 billion to finance its growing budget deficit.

Stephen McInerney stated that US policy toward Egypt, both pre and post-revolution, should be viewed as a failure. He cited US rhetoric promoting democracy in contrast to State Department waivers on aid conditionality as an example of the inability of the US administration to live up to its promises. The United States is the SCAF’s closest ally, yet the SCAF has little respect for the United States and the administration is consistently uninformed about developments in Egypt; a relationship dynamic that McInerney described as “humiliating” for the United States. The tone of the administration is often of concern and bewilderment – indicating that top US officials had not developed realistic policy options for Egypt. The administration is “essentially unprepared” for this moment, McInerney stated.

McInerney further added that the United States needs to acknowledge that its policies have failed and that its current approach is not much different from its pre-revolution one. He noted that Egyptian civil society organizations accuse the US embassy of them, ensuring that the UD view of Egypt’s domestic political turmoil is informed only by SCAF or Muslim Brotherhood viewpoints. Additionally, the mishandling of the NGO crisis demonstrated to Egyptians that the US was willing to apply pressure on the SCAF only when Americans were directly threatened. McInerney called for the US to be more willing to use leverage with Egypt, including promises of debt relief and support for a potential IMF plan as well as military assistance. He said the US should condition its support for such measures on the progress of the transition. The United States will ultimately need to build a new long term relationship with Egypt from scratch, McInerney concluded. 

A discussion with

Bahey El-Din Hassan
General Director
Cairo Institute for Human Rights Studies

Mohsin Khan
Senior Fellow, Rafik Hariri Center for the Middle East
Atlantic Council

Stephen McInerney
Executive Director
Project on Middle East Democracy (POMED)

Moderated by

Michele Dunne
Director, Rafik Hariri Center for the Middle East
Atlantic Council

Bahey El-Din Hassan is the general director of the Cairo Institute for Human Rights Studies (CIHRS), an independent regional non-governmental organization founded in 1993 to promote respect for the principles of human rights and democracy in the Arab region. CIHRS has just released its annual report on human rights in the Arab region, entitled “Fractured Walls…New Horizons.”

Mohsin Khan is a senior fellow at the Atlantic Council’s Rafik Hariri Center for the Middle East focusing on the economic dimensions of transition in the Middle East and North Africa. Dr. Khan was a senior fellow at the Peterson Institute for International Economics since March 2009. Previously he was the Director of the Middle East and Central Asia Department at the International Monetary Fund.

Stephen McInerney is the executive director of POMED. Previously, he was director of advocacy at POMED. He has more than six years of experience in the Middle East, including graduate studies in Middle Eastern politics, history, and the Arabic language at the American University of Beirut and the American University in Cairo.