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Egypt On the Brink

[Editor's Note: The Egyptian military has issued an ultimatum to Egyptian President Mohamed Morsi: Meet the demands of the people within 48 hours or yield to military intervention. Chief-of-staff Abdel Fattah delivered the statement in a state television broadcast following the dramatic protests taking place across the country this weekend. The demonstrations, the largest in Egypt since the Arab Spring, have targeted Morsi’s presidency for its failure to move beyond his roots in the Muslim Brotherhood. The floundering economy, increased sectarian tensions, and a lack of public security are among the listed grievances against Morsi.

Last Thursday, Paul Sullivan analyzed the political and economic sources of discontent, explaining how Egypt got to this point. Sullivan’s prescient writing predicts a hurricane of events to bring dramatic change to the entire country.]

By Paul Sullivan

On June 30, massive anti-Morsi and anti-Muslim Brotherhood demonstrations have been planned. While other smaller demonstrations are held across Egypt everyday, these protests have the potential to push the fragile Egyptian political system into chaos. The Tamarod rebellion against the present leadership has been gaining support at a rapid rate. There are claims that there are about 13 million signatories to recall President Mohamed Morsi. If this is true, that would be more votes than he allegedly received in the still-contested election of last year. General Ahmed Shafiq, who ran against Morsi for the presidency of Egypt, claims that he is the actual victor and that fraud contributed to those election results. Many people in Egypt agree. President Morsi and his supporters, of course, see things differently.

There have been a series of problematic appointments, such as that of a member of the Gamaat Islamiyya, a Sunni Islamist group labeled a terrorist organization by the United States, to be the governor of Luxor. The Gamaat Islamiyya was behind a terror attack in Luxor in the late 90s. Much to the dismay of many Egyptians, many members of the Muslim Brotherhood have been appointed to very high positions. Some people in the countryside in the Nile Delta, one of the most conservative places in Egypt, tried to stop some of the newly appointed governors from moving into their offices. The Muslim Brotherhood used to count on the countryside of Egypt for their support. This no longer seems to be the case.

Recently, senior members of the Muslim Brotherhood directed insults at the army and its leadership sparking even more anger throughout Egypt. Contrary to most media reports in the West, the army remains the most respected institution in Egypt. It is also the one institution that could restore Egypt. The army understands the pulse of Egypt better than any other institution, especially since the 2011 uprising, during which security services were gutted. Yet, one Salafi leader threatened General El-Sissi, the head of the army and the Minister of Defense, in what could be interpreted as a death threat or an attempt to oust him. In either case, the Salafi leader is playing with fire.

President Morsi and the Muslim Brotherhood’s attempts to get closer to Hamas, Hezbollah, and other groups have also angered and upset many in Egypt. In 2011 Hamas and Hezbollah allegedly helped spring President Morsi and other senior members of Muslim Brotherhood from jail. There are many rumors and allegations about the increasing rapport between the present Egyptian leadership and these, and possibly other, extremist groups. Most Egyptians are moderate, and are quite upset by the idea their country is becoming a haven for extremists.

When one group of soldiers was killed in the summer of 2012 and another group of soldiers was kidnapped in the Sinai Peninsula early this year, many Egyptians blamed the Muslim Brotherhood in addition to Hamas and other extremist groups that seemed to be taking over parts of Sinai. More and more Egyptians see the Muslim Brotherhood, Hamas, Hezbollah, and even some of the more extremist groups in Sinai, a region which is now mostly lawless, closer to being one and the same.

However, there are many ideological differences hardening in Egypt. The murders of the Shia cleric and his very few followers in Egypt came as a shock to many. The Sunni-Shia conflict has erupted in Egypt, of which 99 percent of its Muslim population is Sunni. This is an issue that was never really seriously considered during the time of Mubarak. The conflict in Syria and the statements by some extreme Sunni clerics and others have riled the youth up. Some in the Muslim Brotherhood and Salafist groups claim that those who are against them are “infidels.” The Sheikh of Al-Azhar, a person far more moderate than many in the Muslim Brotherhood leadership, disagrees. The Mufti of Egypt and the Sheikh of Al-Azhar have become moderators of this conflict. Their institutions and the army could be an important part of bringing a more stable and prosperous Egypt.

Indeed, without a growing economy and improved prosperity for most Egyptians this instability could go on for a very long time. Increased unemployment and underemployment have bred even more discontent and dissent. Inflation, contrary to many official statistics, is starting to really get out of control. Egypt’s foreign exchange reserves have been draining like a leaky heavy vessel in high seas. Without the bond purchases, grants, and other loans from places like Qatar, Libya, and most recently Saudi Arabia, the Egyptian government would already be bankrupt. Its budget deficit is well over 10 percent of the country’s GDP of about $240 billion. Its trade deficit is more than $30 billion. Its external debt is more than $40 billion. Egypt’s real exchange rate is under great pressure. The value of the Egyptian pound has dropped considerably since the revolution began. Many expect it to drop to about 8 to the dollar in the coming months if political stability is not brought back. It was at about 5.5 to the dollar prior to the revolution. Egypt’s government debt to its own people has also vastly increased recently.

Egypt used to be an exporter of oil. Now it is a net importer of oil. It also has to import gasoline and diesel fuel to make up for shortages. One of the main reasons for some of the shortages has been that the Egyptian General Petroleum Corporation has not been paying its bills to the international oil companies working in Egypt. Under many of these agreements the oil companies can then export more of their oil to get paid in kind. Egypt also lacks the refinery capacity to produce enough gasoline and diesel for its increasing demand. Egypt, which once had hopes of being a significant natural gas exporter, is now enduring a natural gas shortage. Its export facility at Damietta has been shut down for some time. The export pipeline to Israel is shut down for political reasons.

However, the biggest reason for the recent natural gas, gasoline, and diesel shortages until recently has been the continuation of a subsidy program that is draining the coffers of the government. Energy subsidies alone account for 20 percent of the budget of the country. Then there are significant food and other subsidies to account for.

The International Monetary Fund (IMF) wants Egypt to cut back on these subsidies and to free up its economic policies as a precondition to a $4.8 billion loan. If the Egyptian government takes these subsidies off too quickly or in a way that is seen as unequal to Egyptians, the streets will explode once again.

Even so, diesel, gasoline, food, and many other necessities of life are becoming scarcer on the streets and in the countryside. Many people seem to be hoarding and stocking up for what might happen on June 30. Nobody is really sure what will occur, but it does not look good. The prices in the markets, especially in the black markets for certain goods, fuels, etc., are getting increasingly expensive as the country heads to what many see as potentially a protracted time of violence and instability as the anti-Morsi groups and the pro-Morsi groups possibly battle it out on the streets, the airwaves, and more.

Jobs, food, fuel, and water are getting scarcer. Domestic and foreign debts are increasing. Inflation is increasing. Discontent is increasing. Ideological differences are hardening. Frustration amongst the youth, especially the most potentially violent male youth on all sides, is increasing.

These are bad combinations.

June 30 is just a very few days away. What will happen? What could bring the country back from the abyss? What will the army do? What will each side in this battle for the future of Egypt do? As of right now, it is hard to tell how this will play out.

Many Egyptians are waiting and watching, and preparing for a political and economic hurricane to hit. There is anxiety, uncertainty, and fear amongst many. Most, however, seem to believe that after the hurricane hits things will be different this time. Can we even be sure of that?

*****

*****

Paul Sullivan is a professor of economics at the National Defense University, an adjunct professor of security studies at Georgetown University, an adjunct senior fellow at the Federation of American Scientists, and a columnist for UB Post in Mongolia and Turkiye Gazetesi in Turkey.

*All opinions expressed are those of Dr. Sullivan alone.

[Photo courtesy of Jonathan Rashad]

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