As Egypt’s Muslim Brotherhood government slides toward the financial cliff, what’s the right policy for the United States? That’s becoming an urgent question, as Egypt’s financial reserves decline and the country nears a new breaking point.
The economic facts are stark: Egypt’s official foreign-currency reserves in February were $13.5 billion, which would cover a little less than three months of imports. But U.S. officials say that accessible, liquid reserves total only $6 billion to $7 billion. Already, imports are harder to find, including the raw materials needed by Egyptian manufacturers. The Egyptian stock market tumbled 5 percent early this week, sensing danger ahead.
And what is the government of President Mohamed Morsi doing to halt the economic decline? Not a lot. Morsi has been dithering for a year in negotiating a roughly $5 billion rescue package from the International Monetary Fund (IMF) that Egypt desperately needs. He is delaying because he is wary of public anger at the reforms the IMF demands, including reductions in subsidies, which take 25 percent of Egypt’s budget. (Debt service and public-sector employment account for another 50 percent.)
The wolf is two or three months from Egypt’s door, top U.S. officials believe. Meanwhile, the country is facing increasing political turmoil, with riots Tuesday in Port Said that left 50 wounded. Morsi’s government sent a new proposal to the IMF last week, but it may fall short of the IMF’s reform targets, further delaying action.(...)
So what are U.S. policy options as Egypt nears the brink? Some of Morsi’s critics argue that the United States should let him fail. That’s certainly the view of Egypt’s secular opposition, along with conservative Persian Gulf regimes. They hope Egyptians will reject Morsi and his party in parliamentary elections that begin in late April but might be delayed because of legal challenges.