rfmcdonald | [LINK] "Egypt and the Gulf: When a Free Lunch Is Not Free" (Reply)

Steven A. Cook's blog post at the Council of Foreign Relations examining Egypt's awkward relationship with the Persian Gulf states has interesting implications.

Last Friday, the online version of the Egyptian daily, Al Ahram, reported that Egypt is slowing down its payments for commodities, especially food. Apparently, because the country’s foreign currency reserves are currently about $17 billion—which means the Egyptians are coming close to the minimum amounts of reserves needed to cover imports for 3-4 months—the Central Bank has become “particularly cautious” about allocating these funds. Upon hearing the news, one former IMF and Treasury Department official wrote to me: “So it begins…central bank has a delicate balancing act…withhold too long and it gets blamed, but it needs to slow the drain…often see this in advance of em [emerging market] crisis.” There has been some happy talk recently, most notably from IMF chief Christine LaGarde, about the state of Egypt’s finances, but it seems clear that the Egyptians are going to need additional assistance. Their likely patrons will be the Saudis, Emiratis, and Kuwaitis who poured $12 billion in various forms into Egypt right after the July 3, 2013 coup and, in an implicit recognition that the Egyptian economy is in disastrous condition, the three Gulf states have committed an additional $8 billion. The Gulfies may come to regret their investment in Egypt, but for now they remain unwavering in their support for Cairo. It is true as some Emiratis have grumbled in private and stated publicly that they will not keep pouring money down a black hole, but for now at least the assistance will continue to flow. The funding from the Gulf is not just to keep the economy afloat but also to ensure that Egypt follows a particular political trajectory that does not pose a threat to the Saudis, Emiratis, and Kuwaitis or their common strategic interests.

The Egyptians find themselves in both a potentially awkward and possibly advantageous position as a result of the assistance from the Gulf. Since Mubarak fell, Egypt’s leaders and potential leaders—whether servants of the old regime, Muslim Brothers, military officers, neo-Nasserists, business tycoons, or whoever—have desperately sought to tie themselves to the revolution. It is rather stunning how many non-revolutionary figures have declared their desire “to protect the revolution,” but that’s politics. No one in Egypt at least seems willing to call them out on this or point to the fact that as these figures wax eloquently (or not) about democracy and national empowerment, Egypt has become dependent on financing from countries that do not have a very good track record supporting more open political systems. This seems awkward, no? Or is it just me? Less than a year after the July 3 coup and the major Saudi-Emirati-Kuwaiti commitment, Egypt’s interim government and presumptive president, Field Marshal (ret.) Abdel Fattah al Sisi, have not paid a political price for Cairo’s relationship with the major Gulf states. Even presidential candidate Hamdeen Sabahy, an avowed follower of Gamal Abdel Nasser—who basically went to war against Saudi Arabia in Yemen in the 1960s— is on record praising Riyadh and Abu Dhabi for their support. This is likely the result of a broad recognition of Egypt’s difficult economic circumstances and the importance of the assistance in keeping the Egyptian economy afloat. Egyptians seem genuinely grateful for the assistance. It may very well be that Saudi Arabia, the United Arab Emirates, and Kuwait are next on the list of external powers that have financed Egypt’s pursuit of modernization and development. It did not end well for the Brits, Soviets, and Americans. Perhaps it will be different in the case of the Gulf states because they are, in the words of Sabahy, “brotherly,” but I suspect that it will not. At the moment, Egypt, Saudi Arabia, the UAE, and Kuwait may have a confluence of interests, but those interests may change or views about how best to achieve these interests may diverge over time.