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Mon 5 Sep 2011 12:43 PM

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Beyond good politics, Egypt needs jobs to thrive

Economics triggered the Arab Spring and economics will decide Egypt’s future

Beyond good politics, Egypt needs jobs to thrive

Six months after the fall of the Mubarak regime, Egypt
remains in disarray. Protesters continue to take to the streets demanding
change, while dozens of secular and Islamist parties jockey for power with the
all-powerful military in anticipation of elections in November.

Whether Egypt will then get a stable government and develop
into a genuine democracy will depend not only on how it manages its raucous
politics but also on whether it can fix its sclerotic economy, and soon.

Political upheaval has plunged Egypt’s economy into crisis.
Since January, unemployment has climbed to 12 percent, and investment has
shrunk by 26 percent. In a country in which tourism accounts for 11 percent of
GDP, international arrivals have fallen a precipitous 46 percent. Given that 40
percent of the population lives on less than $2 a day, the impact of such jolts
has been profound.

It gets worse: Half of Egypt’s 80 million people are under
the age of 24. Among the country’s unemployed, as many as 90 percent are young,
and two-thirds have never worked.

Egypt faces a vortex of poverty and instability unless it
finds jobs for its rapidly growing population. To keep up with the youth bulge,
the economy has to grow faster (in the range of 10 percent to 11 percent) and
for much longer than perhaps has been seen anywhere in the world.

That would require radical change. Egypt would have to open
its economy, shrink its bloated and corrupt public sector, reform its laws and
financial regulations, invest more in education and infrastructure, and promote
privatization, trade and direct foreign investment. Unfortunately, the country
has been reluctant to do any of this.

This is a shame because such changes have a record of
working. Economic reform was integral to democratization in Eastern Europe and
Latin America in the 1990s. In those cases, the US and Western Europe insisted
on economic restructuring early on, tapping the International Monetary Fund and
the World Bank to help with the process. Reform was not easy. It was marked
with setbacks, social hardships and political resistance. But in the end,
economies were transformed, and Eastern Europe and Latin America are better off
for it.

Since the start of the Arab Spring, many have touted Turkey,
a prosperous democracy with a moderate Islamist government, as a model for
Egypt. It’s important to remember that Turkey’s transformation began in the
early 1980s with an IMF reform plan and was helped since then by additional IMF

Egypt took a different route. With rare exception, the
country has avoided IMF reforms at every turn going back to 1977. In that year,
a bankrupt Egypt, buoyed by a major increase in US aid that was a benefit of
its peace agreement with Israel, decided not to swallow the bitter pill of IMF

That aid, and the largesse of Arabian Gulf monarchies, has
enabled Egypt to stumble along in a state of economic stagnation absent serious
restructuring. In June, billions of dollars in assistance from Gulf donors
allowed Egypt once again to turn down World Bank and IMF loans conditioned on changes.

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Egypt must finally break this habit. There are three
obstacles that must be overcome for this to happen: Egyptian xenophobia, greed
within the country and the inattention of the Western world, which is engrossed
in its own financial problems.

Egyptians are notably suspicious of outside interference in
their affairs. The explanation for this contains a pinch of Arab hubris but
mostly the bitter aftertaste of colonialism. This is the nation that found its
voice during the 1956 Suez Crisis, when President Gamal Abdel Nasser became the
hero of the Arab world by nationalizing the Suez Canal in defiance of Western
powers. The idea of ceding to the advice of international financial
institutions is particularly galling now, when the danger of Western intrigue
is again the slogan of choice for everyone from the military high command to
liberal protesters.

In addition, businessmen who grew wealthy through corruption
and cronyism under former President Hosni Mubarak understand all too well that
economic reform will end their monopoly on riches. And their resistance pales
before that of the military, which, experts estimate, controls 80 percent of
all industry and accounts for a third of all economic activity. The greed of
this gargantuan cartel is an impediment to democratic as well as economic
advances. There will be no end to the military’s domination over Egypt unless
reform frees the economy from its clutches.

Unfortunately, Egypt’s revolution comes at a time of
economic crisis in the West. The US and Europe are busy with their own
problems, and the resources that were available to help Latin America and
Eastern Europe are not available to Egypt.

Yet the outcome in Egypt will strongly influence
developments across the Arab world. Egyptian resistance to external pressure
could be mitigated by emphasizing that reforms would be rewarded with
significant financial support and access to markets in the US and Europe.

The US and European powers must come to realize it is in
their interest to give Egypt the full measure of their attention and support.
Neglect could prompt Egypt to return to dictatorship or to slide, perhaps, into
extremism. US leadership is especially important. The Obama administration
should make clear its belief that democracy requires economic reform and that
it would be foolish, after spending trillions of dollars over the past decade
trying to change the Middle East, to withdraw support from a country that is
struggling to become a genuine democracy.

The US should work closely with its European and Arab allies
to make sure aid to Egypt supports economic restructuring. A useful first step
would be to create an international fund to which all donors to Egypt,
including the oil-rich Persian Gulf states, could contribute to support
development and economic reform. The IMF and the World Bank could manage the
fund in partnership with the Egyptian government. This would send a clear
message of long-run international support for restructuring and would also
reduce the risk that aid money is squandered or lost to corruption.

In responding to the Mideast, we should bear in mind that it
was economics that triggered the Arab Spring. And it is economics that will
decide where the Arab world will go from here.

(This is a column by Vali Nasr. The opinions expressed are
her own.)