As Matt Bradley wrote today in the Wall Street Journal, “Saturday’s flap comes during a precarious moment for Egypt’s economy”:
Egypt needs financial assurances from its wealthy Arab neighbors to both shore up its $11 billion budget deficit and to help underwrite a $3.2 billion loan Egypt is negotiating with the International Monetary Fund.
The IMF loan will be crucial to repairing the damaged perception of the Egyptian economy among foreign investors and forestalling a currency devaluation. If Egypt can gather the domestic and regional political support necessary to secure the loan in the next few months, economists expect the country can avoid a disorderly collapse of the Egyptian pound.
Egyptian financial authorities rejected the loan last summer, in part because of expectations that Saudi Arabia, the world’s biggest oil producer, would follow through on its commitment to lend Egypt $3.75 billion. Except for $500 million sent last summer, Egypt has yet to see the rest of the cash. But last week Saudi Arabia agreed to deposit $1 billion in aid with Egypt’s central bank.
The IMF repeatedly has said that Egypt will need “adequate external financing from Egypt’s international partners,” a phrase that economic analysts understand to mean in-kind loans from European, American and particularly Persian Gulf Arab donors who hold extensive business, political and cultural connections to Egypt.
In short, if the Saudis don’t underwrite the IMF loan, the whole house of cards will collapse, and Egypt will run out of cash to buy food. Its cash reserves have fallen by two-thirds since Hosni Mubarak was ousted and barely cover two months’ worth of imports. That’s not good for a country that imports half its caloric consumption. The difference between Egypt and a banana republic is, no bananas. Guess who will ration bread at street level? The Muslim Brotherhood. That’s how Leninists or Nazis take power.
The Muslim Brotherhood wants to blame the likely collapse of Egypt’s pound and ensuing economic chaos on the military and establish a totalitarian Islamist state. Its anthem will be: “Today Egypt, tomorrow, the Gulf.”
I repeat the recommendation I gave in this space April 18: “What should the United States do about it? The answer is: Make things worse. If the Brothers are taking power in Egypt because the military can’t rule, we should undertake to make it impossible for the Brothers to rule.”
UPDATE, April 29: Egypt’s Salafist party, the extreme Islamists, have withdrawn support from the Muslim Brotherhood presidential candidate and backed instead a more liberal ex-Brotherhood figure, Abdel Moneim Aboul Fotouh. Why would the Salafists break with the Brotherhood? Probably because they are funded by the Saudis, who are rightly alarmed by the Brotherhood. The Saudi Ambassador to Egypt has denied funding the Salafists. No-one believes him. Welcome to Arab politics.