Egypt's Bankruptcy and America's Foreign Policy Failure

"Short of Money, Egypt Sees Crisis on Fuel and Food" is the headline of David Kirkpatrick's dispatch running the length of the right-hand column of Sunday's New York Times. Two years after Egypt's impending economic disaster became apparent, it leads the liberal newspaper of broken record. As Kirkpatrick belatedly observes:

Egypt is running out of the hard currency it needs for fuel imports. The shortage is raising questions about Egypt’s ability to keep importing wheat that is essential to subsidized bread supplies, stirring fears of an economic catastrophe at a time when the government is already struggling to quell violent protests by its political rivals. Farmers already lack fuel for the pumps that irrigate their fields, and they say they fear they will not have enough for the tractors to reap their wheat next month before it rots in the fields.

The American foreign policy consensus is riding a dying horse. The Obama administration's hopes for Muslim democracy have run up against reality, along with the illusions of the Republican mainstream. As recently as March 8, Charles Krauthammer, the pundit who gave the name "democratic realism" to these illusions, argued that "we should not cut off aid to Egypt," that "we should remain engaged," because "there is nothing inevitable about [Muslim] Brotherhood rule."  That is true, strictly speaking. Egypt's military might seize power, but that's not what Krauthammer meant. The trouble is that Washington is still arguing about the disposition of deck chairs on a Saharan version of the Titanic. The question is, rather: How do we deal with a Middle East in which social chaos becomes the new normal?

As I predicted last September and on several subsequent occasions, the Obama administration's silver bullet--a $4.8 billion loan from the International Monetary Fund in exchange for tax hikes and budget cuts--never will be fired. Kirkpatrick:

United States officials warn of disaster unless Egypt soon carries out a package of tax increases and subsidy cuts tied to a $4.8 billion loan from the International Monetary Fund. That would persuade other lenders that Egypt was creditworthy enough to obtain billions more in additional loans needed to meet its yawning deficit. But fearful of a public reaction at a time when the streets are already near boiling, the government of President Mohamed Morsi has so far resisted an I.M.F. deal, insisting that Egypt can wait.

Egypt is not going into an economic and social tailspin because the government of Hosni Mubarak fell in 2011; the government of Hosni Mubarak fell because Egypt already was headed into an economic and social tailspin. We stand not before a glorious era of Muslim democracy, comparable to the revival of Eastern Europe after the fall of Communism, but a prolonged period of chaos. We cannot prevent this; at best we can limit the damage. The problem with the Republican Party isn't that our generals are stupid or malicious. On the contrary: with great intelligence and good will, they have been fighting the last war rather than the new kind of war that confronts us. A war arising from civilizational failure is a circumstance that never entered their imagination.

The situation on the ground in Egypt is becoming desperate. The Egypt Independent reported March 29:

Egypt has not received a crude oil cargo from open market suppliers since January and, with money tight, the state grain buyer has not purchased

wheat since February. International trading houses Petraco and Arcadia were due to deliver crude after winning a tender, but the state importer, Egyptian General Petroleum Corp (EGPC) has cancelled both deliveries, several traders said. As a result, refineries are running well below capacity. On Thursday, the oil ministry blamed repeated power cuts on a lack of funds to buy fuel for power stations.

Egypt is in the hole to energy suppliers for $6 to $8 billion, which is to say that even if the IMF loan came in tomorrow, it would not even square Egypt with its grade creditors. It appears that the Muslim Brotherhood government of Mohamed Morsi is in denial, to coin a phrase. "Egypt has hit breaking point in its ability to pay for imports of oil, wheat and other basic commodities, forcing it to call in diplomatic favors or seek easy payment terms from suppliers who hope for future advantage in return," the Egypt Independent wrote. Emergency loans and in-kind payments have slowed Egypt's descent but cannot stop it. The country simply is too big for its neighbors to sustain indefinitely, and too backward to right itself.

Civilizational failure can't be fixed. It can only be contained, to limit the risk to America and American interests. In a February 15 essay for the Jewish Institute for National Security Affairs, I proposed a set of guidelines for such containment in Egypt. That is straightforward. The cat to be belled is the Iranian nuclear weapons program.