Re-Shuffling and Muddling, in Cairo

Fundamental transition, politically and economically, is a long process that is often choppy, at best. Describing Egypt's Arab Spring - that is, its transition since the overthrow of Hosni Mubarak in 2011 - requires some adjective other than "choppy". Indeed, it's fair to question whether constructive transition of any sort is occurring.

Egypt has been negotiating, on and off, with the International Monetary Fund (IMF) to obtain a $4.8 billion loan (in IMF parlance, known as a Stand-By Arrangement) for close to two years, with an agreement in principle reached in November 2012. But over the past several months, President Morsi's government has stumbled repeatedly in trying to convince the IMF that it can and will introduce the austerity measures needed to control the country's massive and growing budget deficit, now estimated at over 11% of GDP in the current fiscal year.

Yesterday, in yet another hopeful declaration from the government, Egypt's Prime Minister, Hesham Qandil, said that Egypt and the International Monetary Fund (IMF) "agree" on the measures needed to address the fiscal gap (including raising taxes and cutting fuel and food subsidies), adding that "there are no differences between the two sides on the procedures to be adopted, but rather on the timing of their application". This is a spin if ever there was one. Egypt's government is nearly dysfunctional, sorely lacking in economic expertise, especially following yet another re-shuffle of the cabinet at the beginning of May. Egypt's new Finance Minister, for example, is a university academic who has spent most of his career studying questions of Islamic finance, with virtually no international market experience. In all, nine key ministers were replaced, thereby actually increasing the influence of the Muslim Brotherhood at a time when a large and vocal portion of Egyptian society is striving for more secular representation. Moreover, two of the ousted ministers had played central roles in the IMF negotiations, adding to the confusion already created late in April when the lead Egyptian negotiator, the first deputy finance minister, resigned, apparently also under pressure from the Muslim Brotherhood.

Egypt's foreign exchange reserves are critically low, sufficient to cover not even 3 months' imports, and its currency continues to drop against those of its trading partners, notably the US dollar. The country's ability to buy wheat, for example, of which it is the world's biggest importer, or fuel, is compromised. The IMF's Stand-By facility is clearly urgently needed. But President Morsi's government's ability to convince the IMF that it really intends to implement difficult economic reforms is doubtful. The country is likely to struggle on for the rest of the year without the loan, or at least until the parliamentary elections in the fall, somehow coping with a summer of worsening fuel and food shortages, power cuts, a dearth of foreign investment and tourism - and domestic unrest.