Egypt’s Ultimatum

The US sent a strong message to Egypt yesterday.

Under the Senate’s proposal, funds sent to Egypt will be kept at current levels, but military aid will be divided into four parts with conditions set on it. A key condition is that the Egyptian government holds democratic elections.

While $1.55 billion a year is very little compared to the Gulf’s $12 billion splurge earlier this month, and considering Egypt needs roughly $11 billion to $12 billion a year to keep its deficit under control, politically, the aid retains a strong tie to Egypt’s army.  It also prevents the risk of further unrest.

Washington is questioning how to handle the funds it sends since the military ousted elected Islamist President Mohamed Mursi early this month, and US law dictates that aid is cut off to a country where there has been a military coup.

So far, Egypt seems to have got away with what its military-led transition, which says a lot about what the US are willing to put with (i.e., pretty much anything as long as it keeps its hand in with Egypt).

But at what cost will this be for Egypt? 

Stricter conditions from the US are likely to come from other lenders too. The US has already in the last hour that it will delay a planned sale of four F-16 fighter jets to Egypt in light of the military overthrow.

The ultimatum is: Hold an election or else we will make you work for your money, or in the worse case scenario we will cut off aid. 

Major lenders including the World Bank and International Monetary Fund are already wary of Egypt and need reassurance that the country will not descend into more violence as shrill speeches calling for protests are given by military men.

In reality, Egyptians and financiers are looking for one thing: calm.

Calm brings clarity, clarity brings focus and that brings a plan. 

In the meantime, as the army wastes its energy rallying the masses to fight each other rather than unite the nation, there are practical conversations taking place between ministers and different economic organisations who hope to work out a plan for Egypt.

 

Ziad Bahaa El Din, for instance, the new minister for planning and international cooperation (the ministerial position which predominantly deals with international lenders) is now meeting many of these banks and resuming talks to gauge what direction Egypt will go in.

Egypt is now equipped with full bank of Gulf money. But now is the time to make moves toward reassuring donors that Egypt is serious about its transition. The fact that the National Reconciliation initiative, which is formed by interim president Adli Mansour, was launched today but only included groups that need no reconciling, and not the Brotherhood, is already a sign of the struggle for consensus, which lenders sorely need.

Unless the interim government is willing to accelerate its vague plans for economic reform, or call early elections (or both), these lenders, who can give more than just billions of cash to plug holes, will apply stricter conditions making it more difficult for Egypt to overcome its economic crisis.






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