From Tahrir to Trade: US Economic Policy in Egypt

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.