Following the money in Egypt

I go on vacation for one week — one week — and all hell breaks loose in Egypt.

Unfortunately, given this morning’s events, it seems increasingly likely that the best-case scenario for last week’s coup will not come to pass.  In the wake of today’s violence, the New York Times’ David Kirkpatrick reports that the broad-based coalition backing the extralegal change in power is now less broad-based:

A party of ultraconservative Islamists that emerged as an unexpected political kingmaker in Egypt after the military’s ouster of President Mohamed Morsi said on Monday that it was suspending its participation in efforts to form an interim government.

A spokesman for the Al Nour party said its decision was a reaction to a “massacre” hours earlier at an officers’ club here in which security officials said more than 40 people had been killed. The decision brought new complexities and unanswered questions to the effort to create a transitional political order.

The Al Nour party was the only Islamist party to support removing Mr. Morsi, despite his ties to the more moderate Islamists of the Muslim Brotherhood. And the sight of Al Nour’s bearded sheik, standing behind the general who announced the takeover on television, was the only signal to Egyptian voters that the move had not been an attack on Islam, as some of the ousted president’s supporters are saying.

With continued unrest now seemingly guaranteed, a rather delicate question is gonna be raised:  who pays for Egypt? 

I mean that question literally.  One of the reasons that Morsi was ousted was that the Egyptian economy was in freefall prior to the 2011 power transition, and Morsi did not help matters in no small part due to the instability generated by the 2011 power transition:

It’s not like another power transition is gonna make things more stable in the short run. 

Egypt’s bloated state sector is an economic problem, but at the moment it’s also a political problem.  Simply put, someone has to pay the salaries.  Furthermore, if this public opinion data suggests anything, it’s that the only way to sustain the support of the Egyptian people is to revive the economy…. making the Egyptians remarkably similar to everyone else in the globe.

So, who will be Egypt’s benefactor?  It was supposed to be the IMF, but as the Wall Street Journal‘s Ian Talley noted last week, the coup complicates matters greatly: 

The deposing of Egyptian President Mohammed Morsi by the military Wednesday likely freezes any chance for an International Monetary Fund bailout for the ailing economy until an internationally-recognized government is installed.

In recent months, a handful of neighboring countries such as Qatar have been keeping Egypt’s economy afloat by loaning the country’s central bank cash. That has bought Morsi government time to delay implementing the politically-sensitive measures the IMF has sought as a precondition before it gives Cairo a $4.8 billion credit line. In particular, the IMF had said that Egypt must raise taxes and begin phasing out fuel subsidies.

It’s not the only cash at stake. Other international donors have vowed another $9.7 billion for the country once the IMF program is in place. Roughly $1.55 billion in bilateral aid from Washington could also be held up: under U.S. law, the administration can’t loan money to countries where the military is involved in an unconstitutional change in government.

If this Financial Times story by Borzou Daragahi is correct, however, then it looks like the new Egyptian government is gonna try to do the same thing that the old Egyptian government did — look to benefactors in the Persian Gulf: 

Egypt’s central bank governor flew to Abu Dhabi on Sunday to drum up badly needed financial support as cracks appeared within the political coalition that backed last week’s military overthrow of the country’s first elected leader….

The central bank announced on Sunday that the country’s foreign currency and gold reserves had dropped to $14.9bn at the end of June, down from $16bn a month earlier and $36bn at the start of the January 2011 uprising against Hosni Mubarak….

The United Arab Emirates, which pledged $3bn in aid for Egypt in 2011 but never disbursed any, and Saudi Arabia have been the principal foreign backers of overthrowing Mr Morsi. One Egyptian official was cited by local media at the weekend as saying that Riyadh had agreed to a $500m loan to Egypt.

Qatar had been one of the biggest foreign backers of Mr Morsi and his Brotherhood, having pledged some $8bn in aid to his government. It was unclear if Mr Ramez would be travelling to Doha.

A close read of that last story suggests two things.  First, the money from Qatar has likely dried up.  Second, the sums that the other Gulf states are pledging are not gonna be enough to stop Egypt from having to go back to the IMF.  [It’s possible that the Gulf states — particularly the Saudis — will decide to pump even more money into Egypt.  That said, again, today’s events might make it juuuust a bit more awkward for the Saudis to do that.] 

Please bear all of this in mind as you read about the alleged decline of U.S. influence in the region. There’s a difference between declining salience and declining influence.  Because if I’m reading this correctly, Egypt will have no choice but to go back to the IMF — and the United States still has a wee bit of influence within that international organization. 

Am I missing anything?