No More Negotiating
It's not just President Obama that has said no to negotiating.
Since July 3, when the Egyptian army abruptly ended the country's experiment with an Islamist government led by Mohamed Morsi, negotiations with the International Monetary Fund (IMF) over a $4.8 billion loan, ongoing since the January 2011 Arab Spring revolution, have ceased. Egyptian officials have cited the Fund's apparent reluctance to provide formal recognition of General Abdel Fattah al-Sisi's new, "interim" government. In protest, the government has even taken the unusual step of announcing a reduction in its level of representation to the Fund's annual meetings, which begin this weekend, to mere diplomatic staff, instead of its finance minister and central bank governor. In an effort to avert this, IMF Managing Director Christine Lagarde issued a statement today noting that the Fund "is strongly committed to supporting the people of Egypt during this difficult transition,...and we are committed to working with the current authorities".
Even with the Fund's apparent change of heart, however, IMF officials are not likely to be invited to return to Cairo anytime soon. There are two reasons: first, as with previous Egyptian governments since the overthrow of President Mubarak in 2011, the current military government, faced with persistent civil unrest, is hardly receptive to imposing IMF-inspired reforms, such as lifting fuel subsidies and raising taxes, needed to reign in a budget deficit now equivalent to 14% of GDP. Such austerity measures would surely trigger even further public protests, yet without them, the Fund's position is that their lending would provide nothing more than very short-term relief.
But, more importantly, Egypt's current government is not concerned with pursuing IMF financing at this point because it has found another source that appears not only more generous - but less insistent on conditionality. Financing pledges of at least $12 billion from several GCC countries , notably Saudi Arabia, the United Arab Emirates and Kuwait, have poured into Egypt since the removal of President Morsi and the crackdown on the Muslim Brotherhood. The motivation here is purely political - the Gulf countries, like Egypt's military, view the Brotherhood, a transnational organization present throughout the Middle East, as a clear threat to their political stability, and as such, are aggressively stepping in to ensure the survival not only of the Egyptian economy, but the current government as well, at least until new Egyptian elections next year.
GCC financing is on such a scale that Egyptian authorities seem little bothered by America's decision yesterday to suspend the delivery of large-scale military systems and some cash assistance. They have even been able to cobble together a fiscal stimulus package of some $3.2 billion, aimed at supporting growth and creating jobs. But the package contains no mention of the difficult, long-overdue fundamental economic reforms identified by the IMF. An effective fix of the Egyptian economy, it seems, will have to wait.