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IN DIRE STRAITS: Instead of confrontation, Morsi and the military need to work together to avert an economic crisis, write Edmund Blair and Patrick Werr
EGYPT'S new Islamist president and his old military foes have come out swinging in a struggle for political power, but their countrymen need them to find a way to work together to avert economic chaos.
In the two weeks since his inauguration, President Mohamed Morsi of the Muslim Brotherhood has openly defied the entrenched military by summoning the Islamist-led parliament the generals dismissed on the eve of his election.
The political confrontation risks paralysing the government, and the first casualty could be Egypt's fragile economy, fast heading towards a balance of payments and budget crisis.
The past year and a half of turmoil has frightened away tourists, sent investors packing and wrecked economic growth.
"Both the military and the Brotherhood are here to stay for the foreseeable future and neither side is strong enough to defeat the other, so there has to be some compromise," said Shadi Hamid of the Brookings Doha Centre.
The army, in power for six decades, moved to limit the power of the new civilian president even as voters were lining up to elect him. On the first day of a two-day run-off election last month, generals dissolved the Parliament. On the second day, they issued a decree restricting the president's powers.
Morsi did not wait long to assert his own power either, issuing a decree summoning the disbanded Parliament just days after he took office. The lawmakers met last Tuesday. Judges, seen as allies of the generals, responded by rebuking Morsi.
An economy in such straits will not long survive such confrontation, said economist Said Hirsh of Capital Economics: "Months, rather than years, they can hold on like this."
Morsi, whose Brotherhood was repressed under the rule of military men, wants to whittle away at the might of the Supreme Council of the Armed Forces (SCAF) and the sweeping economic interests they control.
But he must also address demands of an electorate desperate for jobs and security after exhausting uncertainty since Hosni Mubarak was toppled by street power in February last year.
"Confronting SCAF and improving the economy don't always go together. Sometimes you have to make a choice to prioritise one over the other," said Hamid.
The political crisis may have already cost Morsi valuable time to set the economy straight, and the tasks ahead are huge.
Egypt’s foreign reserves have tumbled to US$15.5 billion (RM49.3 billion), well below half the level they were at when the anti-Mubarak uprising erupted in January last year. Interest rates the government pays have rocketed to an unsustainable 16 per cent for one-year treasury bills, their highest in a decade.
Investors will be watching closely as Morsi sets up a new government. Several names for a new prime minister are being bounced around — mostly technocrats with an economic background.
“The formation of a legitimate government — and evidence that that government is capable of making and implementing policy — is essential if investors who believe in Egypt’s long-term prospects are to be persuaded that they can begin to deploy capital now,” said Simon Williams, HSBC economist in Dubai.
Morsi must convince the International Monetary Fund that he has enough control of government and broad political support to implement austerity measures the IMF is expected to demand to open the way for a loan facility, last put at US$3.2 billion.
“External aid will buy Egypt time, but Egypt needs reform, access to private capital and growth if it is to begin to reverse the losses of the last 18 months,” said Williams.
A Western diplomat said Egypt is always likely to find a way to avert catastrophe, but that alone would not be enough to deliver on the hopes of people who expect a better future.
“They will always find a way to muddle through, but the prize is not to muddle through,” the diplomat said. “The prize is to do something different.”
In the years before the uprising, economic growth hit seven per cent, making Egypt a darling of emerging market investors. It now hobbles along below two per cent, far below the level needed to create jobs for the youths who drove protests against Mubarak.
David Cowan, a Citibank economist, said he believed Egypt still had enough reserves to support its currency for another year and did not expect an IMF agreement until early next year.
“My central scenario is more political confusion and just more policy muddle through for the rest of this year, whatever long-term damage this is doing to the economy.”
More political battles are on the way, including the fight to shape the new constitution. Earlier constitutional declarations and proposals by the army indicate the generals want to preserve their status and privileges from civilian oversight, which the Brotherhood is determined to impose.
Yet, the disputes so far in Morsi’s presidency may also yield a few reassuring signs. Though tensions rose, there was no descent into the kind of violence that often erupted last year.
The army did not physically prevent members of the disbanded parliament from gathering and even withdrew its troops that were stationed outside the building, handing over to police. Pro-Morsi demonstrations were peaceful.
Short of a full-scale military coup, which analysts think unlikely, the army has less room to manoeuvre since it handed over executive power to Morsi. The president, meanwhile, may have emerged with some extra credibility.
“He had to demonstrate he was not going to be a pushover president, that he was going to be strong president with powers, and I think in that sense he has succeeded,” said Hamid. Reuters