The IMF and socio-political change in Egypt

Since the instigation of IMF-Egyptian negotiations fundamental socio-political policies pursued by the Egyptian government and the structure of the Egyptian economy have undergone a fundamental change. In the twenty years of negotiations Western strong-arm policies and recently compliant Egyptian government policies, have seen a consistent trend away from the populism brought in by Nasser era politics. The economics of Egypt now consistently favor a corporatist-Beurocratic elite, and has eroded the standard of social equity pursued by the revolutionary coup of 1952. Poverty in Egypt has increased, money is continually concentrating to an elite percentage of the population, and institutionalized corruption is rife.
Accompanying this has been a retrograde in the political liberties of the Egyptian populace. Because economic policies have shifted the Government’s support base to a small elite the government has moved to stifle the civil unrest that has naturally stemmed from such policies. This may have a short-term effect of quelling oppositional movements, but history tells us that the long-term effect is only the empowerment of such oppositional groups. To this point the largest opposition group, and now the most widely supported group in Egypt, is the Muslim Brotherhood. Because of government policies that continually neglect the poor and working classes in Egypt (the poor represent over 20% of the population), and the outright neglect for the right to political opposition, the Egyptian government has alienated itself from the majority of the Egyptian society, while emboldening its adversaries.
What this means is that the groundwork for an unstable state in Egypt has begun to be laid. Elitist concentrated, unsustainable economic policy, coupled with an abandonment and polarization of the majority Egyptian population, means that the government will have an increasingly difficult time subduing the public as it becomes galvanized by increasingly deteriorating standards of personal liberties and economic opportunities. When the security state fails, the situation begs the question; whom will it benefit?
In this paper I will begin with a historical analysis of the Egyptian-Internationalist Institution relation and then through three subsequent sections explain how it has effected current Egyptian Socio-Economics. The first section will look at the structural outcomes of the Egyptian-IMF relationship, looking specifically at debt servicing and how this has affected policy. The second section will analize the socio-political effects of the such structural policy, while the third will focus on hypothesized outcomes based on the social and economic paradox created by the Egyptian relation with Internationalist Institutions


IMF-Egypt Relations
Talks between Egypt and the IMF first began in April-May 1985, and resulted in a 1987 Standby Agreement. This was the first, of what is a continuing IMF-Egypt relationship. The move by the Egyptian government to seek financial aid from the IMF was the result of a recession in its economy that began in the mid-eighties and its subsequent inability to finance accumulated foreign debt. The Egyptian economy had been statetist-led since the revolutionary coup of Gamel Abdel-Nasser in 1952. Because of Nasser’s – and subsequent leader’s - populism the Egyptian government pursued import substitution and extensive government subsidies as the backbone of its economic policy. These short-term negative growth policies were offset by repatriated capital, petroleum exports (particularly in the 70’s), as well as US and/or USSR foreign aid - dependent on the time frame one chooses. However, these policies proved to be insufficient to sustaining Egypt economically. Overvaluation of the Egyptian pound – based on a pegging system – adversely affected the agricultural sector, causing a reduction in the amount of land delegated to cotton and wheat production, which Egypt enjoyed a comparative advantage in at the time (Momani pg.11). The government also encouraged consumption, which had had the affect of raising the number of imported goods, and also diverted capital away from industry –both agricultural and industrial – that would sustainably support domestic consumption, opting to invest in capital-intensive industry, such as petroleum. These policies overall led to a large trade deficit and falling terms of trade for all of Egypt’s export industries sans petroleum. Once coupled with a recession Egypt began to be unable to finance its foreign debt or control its economic fall. This led it into negotiations with the IMF, and the all to common story of forced “liberalization” and the disastrous consequences that accompany it.
Through out this relationship the IMF has unrelentingly pressured the Egyptian government to liberalize its economy. The areas most focused on by the IMF in the case of Egypt are the ending of government owned banks and production facilities, lowering of protective tariffs, ending of all government subsidies, and the devaluation of the Egyptian pound. As proposed by IMF staff, these policies would be implemented quickly: immediately raising electrical prices by at least 60%, the full liberalization of Egypt’s, then, government owned banks, and an immediate move to unifying Egypt’s exchange rate system, among others. (Momani pg. 15) However throughout the relationship, or at least until the late nineties, the Egyptian government consistently acted to side step, and in other cases outright ignored, IMF conditions. Instead of implementing in full the staff recommendations, the Egyptian government would do just enough to secure aid, or the release of IMF funds, and then refuse to implement further reform, often citing public discontent as the impetus for its decision.
However an indication on the amount of pressure the Executive Council (EC) was willing to place on Egypt for compliance came quickly. In 1988 when new rounds of talks were initiated, after the 1987 Stand By Agreement was cancelled by the EC and after Egypt drew half the $342 million from the IMF, yet failed to implement any of the reforms requested. This time there would be more at stake for the Egyptian government than IMF funds. Because of the deadlock in negotiations with the IMF, Egypt’s status with other international creditors was affected. The result was the suspension of World Bank and USAID loans for the building of new electricity plants, and a request by Egypt to the African Development Bank for US $270 million to fund another electricity plant was denied. In a report to Congress USAID stated that it was their policy to withhold funds from Egypt until it raised energy prices – the most intensely contested issue between IMF and Egyptian negotiators at the time. (Momani pg. 27)
Negotiations continued to stall over “the need for privatization” of government owned industries – in particular the banking industry - food subsidy, and energy subsidies. As the deadlock persisted the US government decided to withhold $230 million in additional aid until the Egyptian government implemented economic reforms under the guidance of the IMF. Then US Deputy Assistant Secretary of State, Edward Walker, in a presentation to congresses, explained the US government would “use [its] assistance program to creatively encourage both macroeconomic and sector reforms” (US Congress, 1989). This strategy was further strengthened by the passing of the US Brooke Agreement, which required all aid recipients who have accumulated outstanding debt to pay the minimum interest payment or face suspension of further US aid distributions. This amendment alone would have potentially cost Egypt US $2 billion per year (Momani, pg.29). Egypt’s debt issues compounded in a number of ways, including its inability to pay or get credit for its necessary wheat imports in October and November 1989, creating tensions among the populace creating fears of the possibility of another infamous bread riot like that of 1977 . These economic and welfare factors greatly increased the leverage of IMF demands over Egypt, and would become hallmarks of the IMF strategy for Egyptian compliance throughout their relationship.
With the onset of the Gulf War (1990) however Egypt’s importance as a United States regional ally represented an opportunity for the Egyptian government. By committing troops to the intervention against Saddam Hussein, Egypt was able to lend legitimacy to the US led action and convince some other essential Arab governments to join the coalition. Egypt’s position as the most substantial Arab military power in the region also guaranteed that no other regional actor would intervene on behalf of Iraq.
The Egyptian government understood this importance and took the opportunity to lobby the United States to lend support on its behalf in the stalled IMF negotiations. A US embassy report confirms this;

[T]he Egyptian’s observed that the Gulf crises has focused attention on Egypt’s stabilizing influence in the region. The time is right, therefore, for a meeting of the G5 or G7 nations to commit in advance to the resources needed to meet the finance gap…According to [a Egyptian government representative], IMF Managing Director Camdessus told them in their last meeting that he could not agree to a stand-by based on the Egyptian economic reform plan until the creditor nations would agree to meet the finance gap. (US Embassy 1990)

The same document also reported that the embassy did not believe Egyptian Government reforms themselves would ensure an IMF agreement. Therefore the embassy supported the notion, after the Egyptian government asked it to, that the US should help mediate an agreement.

The Egyptians…want us to urge the IMF to bend to their estimate of the possible and conclude an agreement rapidly. Both as a signal to the IMF and because they are desperately strapped for cash to meet debt and food purchase payments. (US Embassy 1990)

The Egyptian government stressed that economic losses related to the Gulf crisis would make it impossible for it to comply with the currently requested IMF stipulations. The embassy mirrored this view, and in acknowledgment of Egypt’s geo-political importance, and its government’s inviability if agreements with the IMF were not met, wholly supported all possible moves to secure Egypt with a new, more favorable, IMF agreement. Following this assessment, in October the Bush senior administration resolved Egypt of it’s military debt – a total amounting to US $6.998 Billion – and pursued other international lenders, specifically Paris Club members, to do the same.
The actions of the US government and its application of pressure on the IMF and other international lenders allowed for the new IMF-Egyptian agreement. The debt relief substantially improved Egypt’s economy, and - albeit continuing low foreign investment – created a positive current account and a surge of international capital. The above scenario however would not replay itself.
In 1993 Egypt would again send a letter of intent to the IMF in an attempt to secure yet another agreement. Egypt, however, had no intention of drawing on the funds provided for by the agreement, but rather was seeking one as a means to secure another $4 billion in Paris Club debt relief, which hinged on the satisfaction of such an agreement. The Egyptian government therefore was not looking for a particularly strong agreement, and in its letter addressed only nominal reform issues. The IMF staff understood the leverage it now possessed however, and pushed many contentious issues that were not addressed in the 1991 Stand-by Agreement, specifically stating; “prior to any successor agreement, sustained performance under the present arrangement, as well as a strong initial package including both financial policies and comprehensive structural actions, would be required.” (Momani pg. 52)
Under the threat of losing debt forgiveness the Egyptian government conceded and wrote a detailed letter of intent including 20 prior commitments – demanded by the IMF – that, as necessity, would be fulfilled before the commencement of any new agreement. The commitments included were an increase in electricity prices, elimination of a majority of import bans, and the creation of a Value Added Tax (VAT) system (Momani pg. 53). Egypt once again, for reasons outside its own desires or best interests, capitulated to a new IMF agreement to attain needed international aid.
This process was to become systematic of IMF-Egyptian relations throughout the 1990s. It was not through a genuine desire for economic reform that Egypt agreed to most IMF demands, but to attain positive IMF staff reviews - as a means to secure favorable credit status -, and secure outside strategic goals that were not interrelated, but hinged on the success of an IMF-Egyptian agreement. Consistently after accepting the terms of IMF agreements, the Egyptian government drug its feet on implementing the requested reforms, and in many instances outright ignored them (Momani pg. 55-56). Domestically Egypt was insistent in claiming that socio-economic factors would not allow it to implement many of the reforms - citing the historical occurrence of riots when essential food subsidies were removed, for example. There also was the constant debate about reform timing. The IMF staff doggedly insisted that reforms had to be sudden and implemented without hesitation – much like the “shock therapy” given to Eastern European countries – to avoid compounding problems by letting them play out into the future. While the Egyptian authorities consistently looked to slow the process of the reforms so as not to invoke the fury of the masses, or experience the horrific effects felt by other countries’ headless, immediate, attempt at liberalization. However by the late nineties, and into the present century, the Egyptian government has been in full compliance and now, on its own, is pursuing economic liberalization at a tact unprecedented since its years as a British protectorate. Economic reform of this magnitude however will have a profound effect on the socio-politics of a nation, and have profound change on a society. Egypt being no exception.

Socio-Political Change

Since the revolutionary coup of 1952 the Egyptian government has been a populist supported mechanism. However, a slow process that begun with the infitah, and matured under Mubarak in the last two decades, has taken place in Egypt. Through economic policy, and which social strata it favors, the essential network of support for the state apparatus naturally gravitates toward those who reap the benefits of government policy. There is abundant literature on whom a liberalized economy benefits, therefore I need not explain it at length it here. Suffice to say in a liberalized system capital, and the worldly benefits it reaps, gravitates from the majority populace (workers, blue/white collar employees) too a small minority (Capitalists, in rare circumstances upwardly mobile middle class entrepreneurs). The case is the same in Egypt, and when one throws in a previously state controlled economy, the creation of a political-economic elite with majority access to power and capital becomes a significant problem.
What happened, acutely in the last two decades was first, a shift in economic policy. Nasser claimed the creation of Arab Socialism, and the policies of a welfare state were hallmarks of his rule. Slowly however economic and domestic social policy changed. Guaranteed employment, access to education, free health care, controlled rent, subsidies, state controlled economic institutions, all began to give way. Privatization of state institutions meant banks, factories etc, moved ostensible from the social realm to the private. A semi-egalitarian ideology is replaced with the mantra of growth, and profit becomes the new denomination through which human progress is measured. As this transformation transpires, the state’s laws and enforcement benefit a different sub-sect of society. This group, which could have been alienated before, is then more receptive to government as its social power increases and government alienates the contrasting social-strata. The new patrioned class therefore acts as a counter weight, as opposition wanes from one group to the other.
This shift in Egyptian socio-politics has proven thus far to be detrimental to the majority of the Egyptian populace. Essential subsidies have been cut, poverty and unemployment are still rampant, and government corruption that caters to the new economic-power elite is rife. All these factors combined have not only negatively effected, but have also alienated the majority population of Egypt. As will be elaborated below this has created an unstable and long-term unsustainable economic and political situation in Egypt.

The Newly Disenfranchised

As assessed by Jon B. Alterman, Egypt is politically “moribund”. The government has moved to structure its power base around a corporatist-security-political elite that has abandoned any populist leanings. This has created a multitude of powerful new political realities. Most important to our assessment here being the shift to a non-populist power base, which has allowed the Egyptian government to implement economic reform, and one that specifically trends upward – meaning the benefits go toward those with economic-and government advantage, while the detriment falls on those disadvantaged in this field. The trend of “de-liberalizing” the socio-politics of the country means that the political legitimacy of Mubarak’s government is now principally dependent upon appeasing an interrelated economic-government beaurocratic elite.
The continued appeasement of these classes is also dependent on the goodwill of international political factors, in particular the IMF, USAID and Paris Club, and the placation of these institutions means continually financing foreign debt and keeping with
economic liberalization policies as prescribed by the IMF. As was shown in June 1994 , the ability of Egypt to attain debt relief from international lenders has rested squarely – after the 1991 negotiations - upon positive IMF reviews of Egypt’s economy and its policies. Without the debt relief by these entities the Egyptian government would find itself in a quandary over its external debt, see less international investment because of this, and would not be able to finance this debt while giving handouts to its new found political support base.
Financing its external debt first has served two purposes to this point. First, maintaining positive reviews by the IMF thus allowing continued debt relief and international assistance with its economy, and avoiding suspension of USAID under the US Brooke Agreement. While secondly, because the government has chosen to finance this debt principally through the selling of T-Bills, it has allowed the hardships of financing such a debt to fall upon those that do not make up Mubarak’s political support base. The policies used thus far however are unsustainable in the long run, both financially and socio-politically.
Typically, the selling of T-Bills can be an effective way of raising much needed government funds particularly in the case of an indebted “developing country,” helping the government attain foreign currency reserves that can be used to repay loans. The Egyptian government, however, has not had the available funds to finance this process and thus has resorted to procuring loans from the National Investment Bank (NIB) to raise the capital that is then sold. The problem lies in the interest rates that the loans are procured and the T-Bills sold for. To use US stock market terms, the Egyptian government is borrowing long and lending short. The government has been taking loans from the NIB at high interest rates relative to the high interest rates it is offering on T-Bills. The high interest rates on T-Bills are an incentive to attract investors, but the interest rate inevitably makes the use of T-Bills to finance debt a long-term problem since the interest rate makes them unprofitable for the government in the long term. Though, by selling T-Bills in the short-term, the government is able to raise instant capital to finance repayment of its external debt, it at the same time is incurring a public debt because of the interest and principle owed to NIB and T-Bill holders. This sort of monetary financing creates obvious sustainability problems, as the Egyptian government is essentially trading its foreign debt for a domestic debt. In Egypt this sort of debt raises significant problems because it does two things: First is redistributes capital from Egyptians to foreigners, and secondly from the poor to the rich.
Money is moved from Egyptians to foreigners primarily through the issuance of T-Bills. There have been multiple instances of large capital inflows; the example here will be from one such inflow in 1996-98. During this influx it is estimated that the inflows averaged $2 billion per year, or 4.5% of Egyptian GDP. The direct fiscal cost of the inflows, because of sterilization, is estimated at LE 0.1 billion, or 1.4% or GDP, for those two years. The direct cost based on the issuance of T-Bills, and the fact that almost all T-Bills issued were bought by international institutional investors, means that a significant amount of capital was taken from the Egyptian economy and redistributed to international markets, thus money was moved from Egyptians to foreigners. This subsequently constricts the capital market in Egypt, raising domestic prices on goods and restricting state monetary control. This accounts for the primary short-term problem in incurring public debt.
Karima Korayem shows poignantly the long-term problems – in relation to the Egyptian populace – of domestic debt being a consistent debt to NOIP and GASI (Korayem, 2000). Capital has been drawn by the National Investment Bank (NIB) , from NOIP and GASI funds, primarily through an implicit tax system. Throughout the 1990s the implicit tax rate imposed on these pensioners funds exceeded 100% the interest guaranteed to the funds by their NIB investments, meaning; NOIP and GASI actually owe, through the implicit tax, more than what its investments are earning each year. This obviously impairs the ability for these funds to provide for pensioners in old age, which is the purpose of such institutions. The monies taken, however, are rationalized by the government through NIB utilization of the capital. The funds drawn from the implicit tax accounts for roughly 58% of NIB resources, which are used to finance long-term investment projects. By priority of funds, these invest are: Housing and new urban communities, transport and communication, electricity and energy and education. With the investments in primary infrastructure one can construe that the benefits are general, however it is obvious that such programs benefit those with greater access to capital more than others, and in the case of transportation and communication, electricity and energy, and housing and urban development, they cater to the demand of the rich more than the broad public. The uneven appropriation of funds from poor to rich can be further magnified when one looks at the soft financing by the NIB. These projects include low-cost housing, cattle feeding, export projects, emergency housing, and industrial park development, and only the low-cost housing can be seen as directly benefiting the poor more signifigantly than other social strata. Compared with the amount of investment allocated to the former mentioned projects, the latter receive a scant LE350 Million, accounting on the average for only 4.4% of NIB resources. The percentage of investment in these projects has also shown a steady decline throughout the 90s and the early half of the twenty-first century.
The implicit tax levied against NOIP and GASI then has two major negative components. The first being the amount of capital NOIP and GASI owe over the interest received from the NIB has created a draining effect on both funds, inevitably then hurting its pensioners, i.e. the poor. The second being the monies siphoned from both institutions is re-allocated into long-term investment plans that heavily favor the rich over the poor. It can be said then that this monetary arrangement acts as a back door tax, one the explicitly moves capital from the poor and reallocates it to the rich.

The Structure of Debt and its Purposes

As was shown above, the use of T-Bills as a means of short financing of foreign debt was chosen by the government to placate international monetary institutions and guarantee continued, and essential, debt relief. This policy has accounted for the largest percentage of Egyptian public debt. While the debt owed because of the implicit tax levied against NOIP and GASI makes up the second part of public debt, it is obviously a means of financing development projects that have a disproportionate positive effect on the rich, and also serves to stimulate short term growth, helping Egypt keep a presentable façade of positive economic performance, that will in turn embolden international investment and the positive assessments from the IMF staff. Both policies help Egypt in procuring debt relief and positive economic reviews, and the latter works to keep support among Mubarak’s only political buttress. None of these then work to address the needs of the poor, which is the majority population of Egypt, and when coupled with the IMF imposed policies of essential subsidies removal, and the political alienation of any conceivable public ‘pressure valve,’ you have the makings of an unstable socio-economic state.
The external debt financing chosen by the Egyptian government is not a long-term sustainable policy. With negotiations continuing between the IMF and Egypt to this day, its is obvious that Egypt will continue to incur a foreign debt for years to come, However its policy of running a domestic debt to finance this debt will not be able to continue indefinitely. Current public debt financing accounts for over one quarter of government expenditure, thus negatively affecting all other forms of government’s expenditure as it grows, particularly infrastructure and essential food subsidies. Besides a reduction in the amount of capital available for public financing, public debt has the effect of slowing growth in a country and restricting the money supply causing lower investment and business confidence. These economic policies effects have thus far acted as a smoke screen to underlying issues of mismanagement and financial instability. Smokescreens, however, have the detrimental ability to go the way of the wind, and inevitable dissolve leaving their intended subject naked to the realities it wished to hide.

Socio-Politics

The second issue addressed thus far is more theoretical, but history here acts as our informed guide. Beginning in the late nineties the Egyptian government had forsaken (for the first time since Nasser) all attempts at populism, and rather found its support entrenched with a business-beurocratic elite. It can be argued that this was the inevitable outcome of years of painstaking economic liberalization policies. Since the first talks with the IMF, the Egyptian government argued consistently against all proposed liberalization policies on the principal of the will of the masses to mobilize against such actions. However, by 1997 the Egyptian government was pursuing full liberalization reform. Economic liberalization historically, and mathematically, benefits those with greater access to capital, specifically in the short term. It can be hypothesized then that the Egyptian governments political ability to pursue economic liberalization, therefore placating the aforementioned international monetary institutions, was based in the transformation of its support base from those who liberalization hurts, to those it benefits. However, as Alterman argues, this sort of political and economic alienation, with a clear lack of outlets for public discontent, leads to a very unstable autocratic government, which lacks the political will and ability to respond to the public’s demands when they become galvanized into action (Alterman 2000).
These two primary economic and socio-political factors stem from the twin root of international monetary and political policy. To save its government Mubarak had to make the overture to the IMF in the latter half of the 1980s. It was essential to secure future funds, and current debt relief, that without, it could not continue to support itself as a state. The need for continued support from these international institutions is what led the slow transformation from one political base to another. The demand of liberalization has been the primary catalyst in the economic and socio-political transformation that has occurred in the past two decades. However a move to liberalization is no assurance of “success.” As has been shown, the course Egypt has taken, and is currently navigating, is both economically and politically unstable, and have thus far only acted to support an inefficient state past its natural existence. Sooner than later the contradictions of its economic policies and the political realities of governorship will have to be rectified, in the halls of the IMF and the streets of Egypt.

This conclusion therefore begs the question; can the current regime alleviate itself from the interrelated economic and social paradoxes created by its continued relations with these international monetary institutions?
In short, no. The most sound economic and social action the government could take in the short term is to stop financing its foreign debt through t-bills, and instead implement a progressive tax that could cover the fiscal cost of continued financing. This however is incredibly unlikely, and in the governments current position the loss of its last bastion of support could destabilize the government enough to force it to significant reform and the loss of its current position of power. Any attempted solution to the current economic crisis would also have to include a halt to the corrupt inherent tax levied against NOIP and GASI funds, and the reintroduction of monetary controls on the Egyptian LE. Both are essential for creating support among the currently alienated classes of the society, and improving the general welfare of those in the Egyptian state. The cessation of the inherent tax would allow NOIP and GASI funds to accomplish their specified purpose, a failure to do so in the near future is going to present a significant crisis to the government as hundreds of thousands of workers find themselves without their promised pension. Re-introducing control over the value of the Egyptian LE would have significant short-term effects for the populace, in particular the poor. Because Egypt is principally an importer, specifically on food stuffs – in particular wheat used for making subsidized bread – the re-introduction of monetary controls would stabilize the essential consumption market in a nominal way, and would allow the Egyptian government to better implement and target subsidies to those in most need by creating a more predictable and controllable market. Monetary controls would also increase the ability of the general Egyptian populace to purchase essential goods, thus addressing some very prolific health issues such as malnutrition, and would also help in the financing of foreign debt by helping support the switch from foreign to domestic capital inflows.
These first steps however are nearly impossible for the Egyptian government to take because of ongoing IMF relations, and the government’s relation to the capitalist-beaurocratic elite that currently supports it. The government would have a difficult time implementing a progressive taxing system given the obvious negative reception it would have among its support base, non-the less its own most powerful officials. As mentioned before the loss of support among its last class of supporters could lead to a quickening demise of the regime. The halt to the misuse of NOIP and GASI funds is possible, however the effects it could have on the façade of growth and further appeasement of the middle and upper classes could be significant considering the funds provided for by the inherent tax accounts for more than half of available NIB funds for reinvestment as elaborated on above. The re-introduction of monetary controls would be the most difficult of the proposals. The IMF, USAID, Paris Club etc. have been vehemently opposed to any sort of monetary control since the beginning of the IMF-Egyptian relationship in 1987. A re-introduction of such controls would be seen as a direct assault on the internationalist’s hegemony, and would no doubt bring the incumbent wrath of such a perceived affront, which we can understand from above to be wholly un-weatherable for the Egyptian government.
Sadly the outcomes predicted above leave little hope for the improvement of the mass of Egyptian citizens lives under the current government. The promise of the only viable political opposition at this time however does not offer much more.
The Muslim Brotherhood (MB) currently enjoys the undoubted support from the majority of the Egyptian population. Multiple factors including increased conservatism and support for religious rule because of repatriated workers from the conservative gulf states and years of poor secular rule – respectively, and the fact that the only group thus far able to garner the twin pillars of personal and monetary support has been The Brothers, has led to this current reality. However the MB has two distinct disadvantages when it comes to a legitimate and lasting stake at power in the country.
To come to power The Brothers would have too galvanize its support base into collective action. Egypt is a police state, it has been under virtual martial law since the assassination of Sadat, and until the public is able to express a will that is collective and organized, the power of their independent actions means nothing against a state that has one of the most complex suppression apparatuses in the region. The MB is missing a key sector of the Egyptian society however. Traditionally industrialized workers have served as a backbone to any successful attempt at a non-coup style overthrow. However the MB have historically and consistently alienated themselves from organized workers movements, and has failed, outside of less than modest attempts, to organize workers in Brotherhood supported organizations. (Benin & Lockman) Support and cooperation from these groups is a necessity if The Brothers wish to put forward a viable opposition to the government.
The second obstacle is not one so easy to overcome, and an analogy between the Brothers and the current government can be discerned. As Diaa Rashwan bluntly puts it, “[The Brotherhood] doesn’t have any kind of reason to be against the actual economic structure in Egypt.” (Richter, 2006) In an article in Al-Watan Al-Araby, Mahmoud Sadiq surmises that the Brotherhood is the richest group in Egypt. Estimates of the Brotherhood’s fund range from US $150 million all the way to $3 Billion when including current holdings and investments. The Brotherhood accumulates revenues from three main sources; business activities undertaken by its members that produce returns for the organization, zakat (8% of yearly income) paid by all members, and extra donations by wealthy business patrons. The first and last of the three are of main concern here.
The industries the MB is most involved in include real estate, construction and building materials, textiles, and IT. These industries are mentioned above as receiving the greatest benefit from NIB patronage [recall the inherent tax], as well as the greatest share of the benefit from liberalization policies. To put it flatly, the most influential members of the society – based on economic contribution – and the majority investments of the organization in general, are entrenched among the some corporatist elite that currently supports government economic policy. This brings new problems to light about the ability for the current regime to implement meaningful reform as mentioned above, but also gives one direct insight into what the prospects of a MB controlled Egypt would manifest. Therefore even if the MB could garner enough support for a populist movement in Egypt, the long term effects on the well being of the average Egyptian citizen would likely not improve. The MB has not put forward any sort of comprehensive economic plan in its political campaigns, because it has no reason to do so given the support it currently receives from it.

Conclusion

The problems and paradox created by the current Egyptian-IMF relationship are ones not easily cured, and in a situation where the contemporary power and the only viable opposition force have not interest or ability to deal with these contradictions, the future assessment of the Egyptian state is grim. For Egypt to continually secure much needed debt relief, continued economic and military aid, and for both major groups in Egypt to keep support among their own influential elite, a continued relationship with the IMF, and a continuation of the current unsustainable economic practices is necessary. The problem of the domestic constituents is compounded by a single minded IMF staff whose economic analysis has consistently created such internal contradictions and led many countries into economic disaster. Sadly Egypt appears to be no different.
Because of Egypt’s strategic “regional importance” solely as a military power to the United States, the continuation of military and international aid and unsubstantiated support for blatant poor economic policy will continue. Regrettably the $1.3 Billion a year in US military aid is used in large part to reinforce the state military apparatus in Egypt. It is estimated that the US embassy currently keeps 35 US military advisors who train Egyptian forces in the use of weapons supplied by the United States, some of which include weapons whose only purpose can be popular suppression – ex. Police riot gear and tear gas, on staff (Independent Source). This sort of support will only prolong and worsen the possible outcomes of unavoidable eventual change. The way that this future change will happen, and its end composition, will depend greatly on the ensuing years and the type of policies that are carried out by the Egyptian government and its international backers. If measures are not taken, by both the Egyptian Government, and its interested international partners, to curb poor economic of socio-political policy the situation for a majority of Egyptians will drastically deteriorate. The viability of the Egyptian state is at stake, and the lives of millions of Egyptian with it.



1 This term will refer to the most influencial [in the case of Egypt] international institutions that effect the internal politics of the Egyptian state. Those include; IMF, USAID, World Bank, Paris Club. These four institutions, though independent, consistently share the same goals and use interlaced methods of political, economic, and at times militaristic, pressure to pursue their goals.
2 An example of such an action can be seen when in the summer of 1985 the Egyptian government changed its energy and water policy by increasing water tariff rates by 50%. This was done to secure a $500 million cash transfer from the US government. Afterward the government refused to implement further reform, in particular to subsidized gas, and cooking oils. (Momani pg.11)
3 The political controlling board of the IMF, separate from the ‘staff,’ which makes economic reviews and recommendations. The board is chaired by representatives of IMF member countries and has the final say in all matters of the IMF.
4 In 1977 then President Anwar Sadat attempted, under the ideology of the infitah, to increase the price of bread in Egypt. This sparked riots in Cairo unheard of, in size and intensity, since the revolutionary coup of Gamal Abdel Nasser. Since no other Egyptian politician has attempted to touch this sensitive subsidy.
5 The Egyptian government noted the losses to be approximately US $10 Billion. This included costs of military deployment to the gulf, losses in revenues related to tourism and the Suez Canal. In addition to the Egyptian authorities estimated another $10 Billion in assets and bank deposits left behind by Egyptian workers fleeing the situation. They also suggested that the government would require an additional $7,407 for each worker to create employment opportunities in country.
6 Mubarak has curbed public-populist movements most notably the Muslim Brotherhood, and has restricted independent organizations, particularly NGOs from operating. (Alterman, 2000)
7 Paris club withholds $4 billion debt relief because of poor IMF review, forcing Egypt to pay $350-400 million in Service charges annually (Momani, pg.56)
8 63% of domestic debt is tied to T-Bills, while 37% is owed to NIB (Korayem pg.29)
9 NOIP and GASI are government-operated pensioner’s funds used as a social security for low-income laborers in the country.
10 The National Investment Bank is a publicly (national) owned entity. It controls roughly 25% total bank deposits, and controls funds for the whole of the national security system (NOIP & GASI)
11 NOIP and GASI balances are counted in the realm of domestic debt because they are state owned. This is interesting in that the tax levied is government controlled, and amounts essentially to purposeful debt of both institutions.
12 Government Debt to the NIB quadrupled during the 1990’s, doubling its share of total government debt during the same period. This percentage has been increasing since that time. (Korayem pg. 29)





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