Arab spring | Power & Policy

Tag Archives: Arab spring

Forget the Coup: Egypt’s Economy Is the Real Problem

Any new permanent government will face the choice Morsi had but never made: market economic reforms on the one hand and a command-and-control statist economy on the other. By Ben W. Heineman, Jr. (This article first appeared on TheAtlantic.com, where … Continue reading >

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The Shifting Nature of Iran’s Regional Policy

By Kayhan Barzegar This article was first published on December 17, 2012 in Persian by Tabnak The Arab Spring has resulted in a shift in the nature of Iran’s regional policy from  a traditional “reconciliation and resistance” approach to a … Continue reading >

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The Arab Spring and the Balance of Power in the Middle East

By Kayhan Barzegar The Arab Spring can be seen as a turning point in the regional balance of power of the Middle East. Previously, the “balance of power” was determined at the level of classic players—the states—and therefore was easier. … Continue reading >

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Vigilance essential in coming months

The Power & Policy Fellows’ Forum By Rolf Mowatt-Larssen, Senior Fellow, Belfer Center for Science and International Affairs We must remain especially vigilant over the next weeks and months. There is likely to be a global spike in terrorist threats … Continue reading >

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Managing the Atom Project | Power & Policy

Tag Archives: Managing the Atom Project

North Korea’s third nuclear test: plutonium or highly enriched uranium?

By Hui Zhang Senior Research Associate, Project on Managing the Atom, Belfer Center for Science and International Affairs, Harvard Kennedy School On February 12, 2013, North Korea conducted its third nuclear test, and a number of seismic stations around the … Continue reading >

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Forget the Coup: Egypt’s Economy Is the Real Problem | Power & Policy

Forget the Coup: Egypt’s Economy Is the Real Problem

Any new permanent government will face the choice Morsi had but never made: market economic reforms on the one hand and a command-and-control statist economy on the other.

Ben W. Heineman, Jr.

Ben W. Heineman, Jr.

By Ben W. Heineman, Jr.

(This article first appeared on TheAtlantic.com, where Ben Heineman is a frequent contributor)

Egypt’s political dilemmas are based, in important part, on its economic dilemmas. But since the overthrow of the Morsi government, far less attention has been paid to crucial economic issues than the political and constitutional conflicts. But economic issues–and the lack of a legitimated economic vision–have been as much a cause of the unrest, change and uncertainty in Egypt, and during both the Mubarak and Morsi tenures. And they may be more intractable.

Any new permanent government will face the choice Morsi had but never made: between market economic reforms on the one hand, led by economists and business people to promote growth, jobs, and trade, and a command-and-control statist economy on the other, which provides subsidies for essentials like energy and staples like bread, rice, and sugar–and also provides sinecures for ex-military officers. Part of the problem is that “liberalizing” reforms–there have been three waves since the end of Nassar’s regime than 40 years ago–are perceived as helping the rich and reflecting crony capitalism, rather than raising Egypt as a whole.

Morsi’s inability to chart a clear economic path led to a significant worsening of Egypt’s economic straits, which in turn helped mobilize the powerful street opposition. From just before 2011 to today: GDP growth is down (from nearly 6 percent to under 2 percent); unemployment is up (from 9 percent to over 13 percent); foreign exchange reserves are down (from $35 billion to just under $15 billion); the budget deficit has more than doubled (from nearly $110 billion to over $230 billion); a quarter of that budget are subsidies to poor and middle class; and the poor and near-poor total approximately half of the population. Tourism is down significantly due to security concerns; direct foreign investment has declined sharply; gasoline and power shortages bedevil the population; a slide in the Egyptian currency has raised prices of foreign goods such as food imports; wealth distribution is badly skewed; the nation’s credit rating is cratering; the hidden “black” economy constitutes as much as 40 percent of Egyptian economic activity. And corruption continues.

The critical economic issue is not the scope of the problems but what to do about them–a subject lost in the political swirl, but essential to any future regime stability. As with constitutional and political reform, a consensus economic program must resolve deep conflicting interests: between liberal elite capitalists and the military elite, between competitive enterprises and huge state subsidies for energy and food; between a private-sector middle class and a government-employed middle class that makes up fully one third of the workforce; between the 45 million Egyptians under 35, poor or professional, and those who control the economy through what the young regard as corrupt and non-meritocratic means; between urban and rural; between a variety of secular and Islamic views of the economy.

In the fall of 2011, the International Monetary Fund proposed one set of reforms as part of $4.8 billion standby agreement aimed at creating economic growth. More than $5 billion in additional funds from the EU and the U.S.–beyond the current $1.3 billion in military assistance–were to follow. The IMF conditions included the following controversial items: removing energy subsidies for all but the poor; raising revenue through a broadly applicable value-added tax; using those funds to reduce the budget deficit and increase infrastructure spending; reducing a bloated bureaucracy; and significantly increasing transparency in government budgeting and finance–transparency that in Egypt would threaten longstanding corrupt activities.

Morsi initially agreed to the IMF conditions. But within three weeks, he stunningly renounced the agreement because of strong opposition to reduced subsidies and new taxes on many Egyptians and because many criticized the lack of transparency in IMF negotiations. The depths of controversy on the reforms simply overwhelmed an economic way forward. All this occurred before the first anniversary of the original Tahrir Square demonstrations. Egyptian economic reform was effectively dead.

With no new IMF, EU, or U.S. funds, the Morsi government received about $8 billion in stopgap funding from Qatar and, in smaller amounts, Turkey and Libya. None of that financing imposed any economic reform conditions. Today, with those nations critical of the Morsi government’s demise, it appears that Saudi Arabia and the United Arab Emirates, both of them critics of the Moslem Brotherhood, will step up to provide billions in emergency funding. But again, it seems unlikely that these funds will come with any demands for economic reforms.

So the economic dilemmas are, for the foreseeable future, likely to remain acute. It is hard to imagine that the current interim government will take any of the major reform steps that would inevitably create winners and losers–even though a moderate and experienced Egyptian economist, Hazem el-Beblawi, will be interim prime minister. And a revised constitution, duly elected parliament, and newly chosen president are not likely to be in place until sometime next year. Already, the interim government’s recent proposals for these fundamental processes are being widely criticized.

If and when a constitutionally based and fairly elected government takes office next year, it will still have an extraordinary challenge addressing the economic dilemmas and conflicts embedded in reducing subsidies, trimming the government, raising revenues, rejuvenating the private sector, limiting the military’s commercial activities/sinecures, and dealing with endemic corruption and the black economy. Without a broad consensus on an economic plan, the IMF, EU, and U.S. are not likely to provide funding tied to such reforms. And funds from Arab nations may forestall basic economic issues–but not resolve them.

A government that can create a societal consensus on an economic way forward seems more distant today than in the heady period of the first Tahrir Square demonstrations, two and a half years ago. The world will watch to see if Egypt can avoid economic, not just constitutional, tragedy.

Ben Heineman is a senior fellow in the Belfer Center for Science and International Affairs at Harvard Kennedy School and a senior fellow at Harvard Law School’s Programs on Corporate Governance  and the Legal Profession. He was GE’s Senior Vice President for Law and Public Affairs.

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Heinonen | Power & Policy

Tag Archives: Heinonen

Iran: the 20-percent solution

By Olli Heinonen In my January 11 article, “The 20 Percent Solution,” on the Foreign Policy magazine website, I wrote that Iran is on its way to becoming a virtual nuclear weapon state — a state that is putting the … Continue reading >

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After Fukushima: Seizing the chance to strengthen nuclear safety and security

By Matthew Bunn Associate Professor of Public Policy, Harvard Kennedy School; co-principal investigator, Managing the Atom Program, Belfer Center for Science and International Affairs. Olli Heinonen and I have written a piece just out in Science (log in required) on … Continue reading >

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How transparent is Iran’s nuclear transparency?

By Olli J. Heinonen Senior Fellow, Belfer Center for Science and International Affairs Every September, the International Atomic Energy Agency’s Board of Governors holds one of its four major annual Board meetings.  At each Board session, the item on Safeguards … Continue reading >

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The IAEA and the Nuclear Crisis at Fukushima

The Power & Policy Fellows’ Forum By Olli Heinonen Senior Fellow in the Belfer Center for Science and International Affairs; former Deputy Director General, International Atomic Energy Agency (IAEA), and head of Department of Safeguards As the human tragedy of … Continue reading >

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The Power of the Ikhwan | Power & Policy

The Power of the Ikhwan

By Richard Clarke

By Richard Clarke

Sitting on the sidelines as students and workers poured into Tahrir Square for the initial demonstrations that ultimately brought down Hosni Mubarak were the well organized cells of the Muslim Brotherhood in Egypt, known in Arabic as the brothers, or the Ikhwan. Their leadership decided to hold back and see what developed in the protests. Why?

Among the many reasons considered by the Ikhwan leaders was probably the simple fact that the protesters in the square were not their people.  Many of the protesters were secular democrats, some were even Coptic Christians. A large number were women. The Ikhwan has always stood for an Islamic religious state, where the government would enforce strict interpretations of Islamic law, not a place for secularists, Christians, or activist women. For decades their view of democracy had been as one possible means to gain power, but in the sense that the Algerian Islamists viewed elections: “one man, one vote, one time.”

When it was clear, however, that the Egyptian movement was powerful and might succeed, the Ikhwan joined in. They were invited to the table to negotiate with Mubarak’s Vice President. After Mubarak fell, they were invited to appoint a representative on the new committee to recommend constitutional change.

Egyptians celebrate in Tahrir Square, Cairo, on February 12, 2011. (Maggie Osama Photo)

Egyptians celebrate in Tahrir Square, Cairo, on February 12, 2011. (Maggie Osama Photo)

In his last years in power Mubarak had used the Ikhwan as a way of scaring the US. He posed the false dichotomy of “me or them.” As part of this strategy, Mubarak had allowed only the Ikhwan to run as an organized group against his own party. All other parties were banned. While he limited the Ikhwan to twenty per cent of the vote (there is no way to know what they actually polled), his strategy did help the Ikhwan. They built a cell structure throughout the country and, even though technically banned later, they continued to build and maintain a well organized, funded, and disciplined organization.  No other political party did that.

Thus, despite their numbers, whatever they may be, their power is greater than those numbers alone would suggest. In many revolutions, it is the small, well disciplined party that ultimately emerges on top. Therefore, the US and Middle Eastern governments will need to watch the Ikhwan carefully.

Unfortunately for America’s National Clandestine Service (the clandestine arm of the CIA), the Ikhwan is difficult to penetrate with Americans. Information coming in from liaison services, friendly regional governments, may be colored by those governments’ agendas. Some of those governments, like Turkey perhaps, see the new Ikhwan as more like Turkey’s ruling Islamic party, willing to maintain a secular constitution and a multi-party state. Others, like the Gulf states, see the Ikhwan as an international conspiracy to establish caliphates, a secret society that has the long view, that has patiently infiltrated its members into positions of influence in finance, education, and government throughout the region.

Rather than debate who is right given the paucity of information available, the US had better make it a priority to find out and soon.  Engagement with the Ikhwan is one way that may possibly increase our knowledge. US policy makers and intelligence officials should now be sitting down together to draw up the most well coordinated and creative collection and analysis effort the US government has run in decades. For the fate of a very crucial region and the future of many US allies, both Arab and Israeli, may rest on getting the right answer and then knowing what to do with it.

About Richard Clarke

Richard Clarke, Adjunct Lecturer in Public Policy, served the last three presidents as a senior White House Advisor. He has held the titles of Special Assistant to the President for Global Affairs; National Coordinator for Security and Counter-terrorism; and Special Advisor to the President for Cyber Security. Full bio >

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2 Responses to The Power of the Ikhwan

  1. mo’men remaih says:

    Ikhwan have not any power in the egyptian political street

  2. Sherifa Zuhur says:

    Richard Clarke, this ignorant commentary is beneath you. Trying to blast the MB after the fact for not joining the protests belies hundreds of photographs which prove you wrong. The amazing US effort to label the protests “secular” or Christian-supported is just plain silly. The MB youth movement was there in Tahrir and in Alexandria and elsewhere in the country. The movement was by all Egyptians for all Egyptians and does not descend to this divisive sectarian effort of rewriting the history of an event where you personally were not present.