February 15, 2013
By David P. Goldman
The possibility of state failure in Egypt is now widely discussed in the foreign policy community. Largely ignored by major media for most of the past two years, Egypt's economic crisis now commands the attention of foreign policy analysts. In a JINSA Analysis published January 30, " Failure IS an Option in Egypt," I argued that the structural deficiencies of Egypt's economy are so deep and intractable that state failure may not be avoidable.
The consensus view is that the international community has no choice but to circle the wagons around the Morsi government and double down its bet on the Muslim Brotherhood. In a February 4 "Conflict Alert," the International Crisis Group summarized the consensus as follows:
In the absence of a shared view of the foundations of a future political system, Islamists are pressing their vision, while their opponents play spoilers. This has the makings of a self-fulfilling prophecy: the more the opposition obstructs and calls for Morsi's ouster, the more it validates the Islamists' conviction it will never recognize their right to govern; the more the Brotherhood charges ahead, the more it confirms the others' belief of its monopolistic designs over power. Even if leaders back away from the brink, this could quickly get out of hand, as their ability to control the rank and file - and, in the case of the opposition, ability to represent the rank and file - dwindles.
Reversing these dynamics requires efforts on two fronts. Politically, the key is mutual acceptance of two realities: that the Brotherhood's electoral victories give their rule legitimacy, but that a historic, complex transition in a challenging security and economic context requires exercise of power to be tempered by meaningful consensus-building.
The situation is made worse by deteriorating economic conditions. As foreign currency reserves decline, the government finds it ever more difficult to prop up the Egyptian pound or maintain fuel and food subsidies. One should not be surprised to see larger segments of the population joining in socio-economic riots. By current trends, Egypt could find itself in a vicious cycle of economic under-performance and political instability, the one fuelling the other.
The problem is that the consensus view doesn't add up, literally speaking. Egypt is short $22 billion a year by a recent Bloomberg News estimate. That number may rise as political turmoil reduces tourism and economic chaos impedes exports. Egypt's trade and domestic budget deficits respectively both approach about 15 percent of GDP, an impossibly large number. To scale Egypt's financing requirements down to manageable size, the international community, through the International Monetary Fund, is demanding subsidy reductions, which are viewed by Egypt's poor as a threat to life itself.
The political consequences are catastrophic, as Ramadan A. Kader explained in a February 5 in The Egyptian Gazette:
The Government sent shockwaves across the nation when, days before the second anniversary of the revolt, a Cabinet minister disclosed a plan to offer every Egyptian just three loaves of the baladi (round) bread every day at the state-subsidized price. Significantly, the 2011 uprising was underpinned by the purely Egyptian slogan: "Bread, Freedom and Social Justice." In short, 'bread' means a lot for the majority of Egyptians. To have it is to live.
The people who want to get more bread will have to buy the staple commodity at the market value, which is five times higher than the subsidized price per loaf.
The controversial rationing is part of an ambitious plan to phase out state subsidies on certain commodities, so as to reduce an unsustainable budget deficit. It is also believed to be part of a package of austerity measures that Egypt has to adopt before getting a $4.8 billion loan from the International Monetary Fund.
The United States finds itself in the worst of all possible worlds, that is, backing the Muslim Brotherhood government unequivocally in public while privately urging it to adopt austerity measures which ensure its inability to govern. The international community will not provide some $60 to $70 billion over the next three years to keep Egypt afloat. The International Monetary Fund's attempt to whittle down Egypt's financing requirements to a manageable amount places an impossible political burden on the Morsi government.
U.S. policy thus contributes to state failure while identifying American policy with this state failure. America has become part of the vicious circle, and runs the risk of being identified as the cause of the vicious circle.
What should the United States do? If there are no good alternatives, America should choose the least bad alternative. U.S. policy should be guided by self-interest. It may not be in the world community's power to avert Egyptian state failure, short of a massive and continuing commitment of financial aid that seems outside the realm of political possibility. At a minimum, America should seek to prevent Egypt's crisis from turning into a regional security disaster, while maximizing its influence over Egyptian institutions and prospective governments.
In summary: the United States should do its utmost to prevent terrorists from taking advantage of political instability in Egypt, and to pre-empt any regionalization of the country's crisis, while taking steps in conjunction with the international community to mitigate the burgeoning humanitarian disaster. There is no recent precedent for managing state failure in a country of Egypt's size and regional importance, and it is difficult to specify policy responses ex ante. Below are some general indications of what American crisis management might attempt to accomplish.
The United States should distance itself from the parties perceived to be responsible for state failure. America's identification with the Morsi government has become an embarrassment and a liability. Whether the government of Mohamed Morsi bears responsibility for Egypt's economic collapse, or whether the mismanagement of the economy during 60 years of military rule is responsible, is something for economic historians to decide. For the present, nothing fails like failure, and the United States should not take ownership of the failure.
The United States should not endorse any political party or institution in a fluid and possibly chaotic period of social turmoil. Rather, it should emphasize America's sympathy for pluralistic democracy, open markets and financial transparency. It is too much to expect the much-vaunted but ephemeral spirit of Tahrir Square in February 2011 to triumph over Egypt's propensity towards chaos, but the United States at this point has nothing to lose by standing up for its own principles and encouraging pro-Western political elements.
The United States should emphasize sharply and unambiguously that anti-Western tendencies in the Egyptian government, including inflammatory statements about Israel by President Morsi and his advisors, undermine world confidence in Egypt and worsen the economic crisis.
The United States should have contingency plans in cooperation with the Egyptian military to prevent disruption of traffic plying the Suez Canal.
The United States should cooperate with elements of Egypt's military leadership to ensure that weapons stockpiles do not make their way into the hands of elements hostile to American interests. Arms sales to Egypt should be suspended until the political situation is resolved to America's satisfaction. The Egyptian military must understand that future military cooperation depends on its cooperation in the present crisis. A state failure on the scale of Libya or Syria would have serious security repercussions for American interests if sophisticated conventional weapons from Egypt's substantial armory were to reach Hamas or other terrorist organizations. Such cooperation should include exceptional measures to monitor Egypt's borders; the specific character of such measures will depend on circumstances on the ground.
The United States and its allies should make clear their commitment to preserve the integrity of Egypt's eastern and southern borders, and take visible and unambiguous measures to signal to all concerned that this commitment is in earnest.
The United States should warn Iran and its allies in the strongest possible terms not to fish in Egypt's troubled waters.
The United States should work with international agencies to prepare for the eventuality that large numbers of Egyptian economic migrants might seek refuge from extreme economic conditions in the countries of the Southern Mediterranean.
The United States should work with international relief organizations to provide emergency food supplies, with the proviso that food distribution remains under the direct control of international organizations. The United States should be seen as a friend of the Egyptian poor in a moment of dire need, rather than as a prop to an unpopular and incompetent government.
In this sort of crisis management, the object of each policy measure is not to end the crisis - that is not within America's power to accomplish - but at each step to give America more maneuvering room and credibility to act in the next phase of the crisis. It is a different sort of thinking than typically applies to foreign policy, but Egypt's predicament is a new and unwelcome challenge that demands a different sort of policy response.
David P. Goldman, JINSA Fellow, writes the "Spengler" column for Asia Times Online and the "Spengler" blog at PJ Media. He is also a columnist at Tablet, and contributes frequently to numerous other publications. For more information on the JINSA Fellowship program, click here. For more information on the JINSA Fellowship program, click here.