Will Winners In Egypt Inherit an Economic Disaster?

Turnout in Egypt was high and largely peaceful on Monday for the launch of the world’s most needlessly complicated election system. While voting will continue until next March and the results won’t be certain for weeks or even months, the Muslim Brotherhood, Egypt’s largest, best organized political force, is widely expected to win a plurality, if not an absolute majority of seats in the 508-member People’s Assembly. They will be well-positioned for the presidential election, now scheduled for next June.

But if current economic trends prevail, the Brotherhood will inherit an economic basket case. Egypt’s once vibrant economy has sputtered since President Hosni Mubarak was forced from office by jubilant, largely secular protesters in Tahrir Square last February. The military stewards, the Supreme Council of Armed Forces, or SCAF, and the succession of civilian ministers it has appointed, have been running Egypt into the ground.

Make no mistake about it: the February “revolution” was thrilling. As someone who lived in and reported from Egypt in the mid-1980’s, it was hard not to be ecstatic about so many mostly younger, secular Egyptians pouring out into Tahrir Square to demand an end to dictatorship and economic and social justice in a country in which 40 percent of the 80 million people live on less than $2 a day.

But as the world now sees, while Mubarak was removed, the military caste he represented has clung to power. And the alternative to military-blessed civilian technocrats may be a religious government whose economic prescriptions for Egypt are unclear at best.

The SCAF has permitted the arrest and expulsion of the financial architects of Mubarak’s economic liberalization – the advisers who privatized Egypt’s top-heavy, inefficient, socialized economy and in the process, achieved growth rates of over 7 percent in 2007 and 2008.

Rashid Mohamed Rasheed, Egypt’s former minister of trade and industry, the first businessman ever to hold a cabinet post in Egypt, has been convicted in absentia of numerous financial crimes and has fled to Dubai. [Former finance minister Youssef Boutros Ghali, also accused of absurd, amorphous financial excesses, has fled the country.] Yusuf Wali, the talented former agriculture minister and economic adviser, is in jail.

Egypt’s growth now stands at 1.2 percent, the International Monetary Fund estimates.

Before Mubarak’s overthrow, the World Bank and IMF considered Egypt one of the safest and best places in the Middle East which to invest. Indeed, foreign investment poured into the country.

No more.

General Motors – which has been investing in Egypt since 1985 -- struck a deal early this month to assemble 5,000 Chevrolet Moves per year for sale to China. But most foreign investors would not invest right now in a falafel stand, given Egypt’s political uncertainty.

In a trenchant posting last week, financial analyst David P. Goldman (Spengler) reported that Egypt’s stock exchange fell 11 percent in the first three days of the week and that the Egyptian pound was on the verge of collapse. Residents and foreigners were dumping the Egyptian pound and buying dollars and Euros -- yes, even Euros. It was becoming impossible to transport bank notes across the country, he noted, quoting Al Ahram, Egypt’s largest state-owned Arabic newspaper, as mobs of Egyptians were attacking the armed cars that try to transport them to branches of Cairo banks.

The Wall Street Journal has disclosed equally disturbing news: While the central bank has been frantically buying pounds to prevent the currency’s collapse as money flees the country, the acting government has burned through 40 percent of Egypt’s foreign currency reserves. Egypt now has about $22 billion left – enough to cover just four months of imports, the Journal quotes Magda Kandil, director of the Egyptian center for Economic Studies, as estimating.

The current finance minister, Hazem el Beblawi, told the WSJ that he didn’t yet know whether he would keep his job, as the SCAF fired the last cabinet it had appointed and now says it won’t form a new one until parliamentary elections are well under way.

Pity poor Egypt. Right now, we should be worrying as much about whether Islamists will carry the day, as what the victors, whoever they are, seem likely to inherit. Stalled economic growth and dashed hopes are a classic prescription for extremists – of all varieties.

Judith Miller is an award-winning writer. She is a Manhattan Institute Scholar and Fox News contributor.