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Thursday
Jul042013

Egypt: The Honeymoon Is Over

By Farah Halime, a business journalist in Cairo and Visiting Fellow at the European Council on Foreign Relations focusing on Egypt’s economy. This post originally appeared on Rebel Economy.

“Let us savour the moment now, and we’ll worry about the future later,” some Egyptians said yesterday hours after Egypt’s military had ousted the country’s president Mohammed Morsi.

Led by General Abdul-Fattah el-Sisi, the army – backed by the heads of Al Azhar, the Coptic Church and Mohamed ElBaradei - moved swiftly and confidently to suspend the country’s Constitution and create an interim government. Crowds erupted in cheers and screams.

Some say the military was working on behalf of the people of Egypt and that the country’s first democratically elected president had to go. Others say the army’s decision was carefully orchestrated, and cannot be described as anything but a military coup.

But as the jubilant atmosphere of Tahrir Square begins to fade, there is one certainty: Egypt’s economy must be made an absolute priority, or risk repeating this scenario in another 12 months. 

This is really a mirage. The immediate gratification gained at getting rid of Morsi is at the expense of solving the basic bread and butter problems that helped push Egyptians onto the streets in the first place.

For example, resolving Egypt’s ever-increasing budget deficit, finally getting over a costly addiction to energy subsidies and actively creating jobs for the 1.2 million Egyptians who lost a job under Morsi (and the millions more who have been seeking formal employment).

Whoever takes over the helm inherits these problems and will likely meet a public backlash to any reforms. The economic challenges have not gone away just because a Muslim Brotherhood leader was booted out.

In fact there are many more questions now lingering:

What of the $4.8 billion loan from the International Monetary Fund? Egypt still desperately needs this but the last time the army was in power (in June 2011), the loan was refused because it was considered too much of a public debt burden. Fast forward two years and you have an intractable crisis made worse by the fact international lenders won’t touch Egypt until this loan is signed.

Also, Egypt currently has no constitution: is it even possible for the IMF to sign a deal with a country with no governing charter?

What of the billions from vehement Muslim Brotherhood ally Qatar? Will the Gulf state pull out now that the Brothers are gone? As Emad Mostaque, strategist at Noah Capital Markets says:

[There are] big question marks over $8 billion of existing Qatari cash being rolled over in a couple of years [and] $19 billion of pledged foreign direct investment in next 4 years (more than everyone else put together over last five [years])

Egyptians may be celebrating now, but hardship is yet to come for the poorest Egyptians who need immediate reforms, and the price we have paid for accepting the military’s aggressive move will no doubt set the tone for the next few months. Contributed by Farah Halime.

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