RSS

Jesse Curtis Morton: March 23, 2013 (Egypt and the IMF – An Economic Struggle for the Future of the New Middle East)

27 Mar

In the two years since the Arab Uprisings turned over the geopolitics of the Middle East, coherent outcomes have escaped concrete formulation. Debate amongst policymakers in the West tends to split analysis down traditional realist and liberal lines, but most insight has failed to acknowledge that political outcomes will ultimately be shaped by underlying economic decisions. Those decisions will have serious implications, not only for region, but for the future make-up of the global economy. Consequentially, the derivative political outcome may prove to determine whether the current unipolar order perpetuates or transitions into a balance of power system. In reality, the economic path chosen by Egyptians will largely determine the outcome of the Arab Spring and will resonate to affect the entire geopolitical order.

Egypt is the most influential country in the new Middle East. With the Arab world’s most populous nation and a political-economy in rapid deterioration, meeting the aspirations that propelled initial uprisings will depend largely on the ultimate formation of economic structures in the country. A milestone related to Egypt’s economic underbelly may have occurred recently. Almost 2 years after President Obama pledged $1 billion in debt relief and assistance, his newly appointed secretary of state, John Kerry pledged to release $250 million in aid contingent on President Morsi’s pursuit of the conditionalities necessary to secure an IMF loan. The decisions, if fulfilled, would not only cement ties between the American hegemon and the Muslim Brotherhood but would sustain and extend Egypt’s participation in an unstable and uncertain international financial order. There are substantial risks for both sides. In releasing aid now, the U.S. is essentially accepting a role for political Islam. In agreeing to IMF dictate, the Muslim Brotherhood-backed Morsi would essentially be accepting participation with an economic order many Egyptians view as contrary to their independent interests.  In reality, if economic principles endorsed by both Western and Islamic systems were advocated a great deal of cooperation and prosperity would ensue and an effective step toward an inevitable, multipolar order would be taken.    

Mr. Kerry’s announcement was not met with much enthusiasm. His support was clearly contingent on President Morsi’s backing of IMF conditionalites that would trim popular food and fuel subsidies that serve tens of millions of impoverished Egyptians. While he called the assistance, “a good faith effort to spur reform and help the Egyptian people,” the crux of his message seemed to critics as a bit paternalistic, typical of a common view that the U.S. pursues its own interests while speaking rhetorically of humanitarianism.  “In light of Egypt’s extreme needs and President Morsi’s assurance that he plans to complete the IMF process, today I advised him that the U.S. will now provide the first $190 million of our pledged $450 million in budget support funds,” Mr. Kerry stated. The decision also indicates that the U.S. has accepted a role for the Muslim Brotherhood in a New Middle East going forward.

As a result, the decision sparked the fury of Egypt’s secularist opposition. They immediately signified an awareness of the implicit endorsement. Egyptian caricatures at protests portrayed Mr. Kerry wearing a beard and charged him with favoritism. Gameela Ismail, a leader of the National Salvation front explained, “You [the U.S.] have supported military rule, and now you are supporting a religious rule just because it serves your interests; President Morsi is taking us, with the support of the U.S., to another version of the Iranian State just because you want to implement your interests through the regime in Egypt.”

But these criticisms are exaggerated and over-simplified, meant to appeal to populist anti-American and anti-Islamic sentiments on the Arab Street but void of nuance and actuality. Morsi has no intention of Iranian-style theocracy. And, in reality, secularists have no coherent economic vision. They too would undoubtedly covet IMF intervention were they in power. While western liberals may empathize with their social liberalism, they are not very popular in Egypt. They previously boycotted scheduled April parliamentary elections that were recently cancelled by the judiciary for fear that it may bring salafists, not secularists, increased power. Public polling already shows overwhelming support for an end to the peace treaty with Israel. Additionally, favorable opinions of the U.S. in countries like Egypt have dropped considerably since the Arab Spring. The U.S. is acting in interests that want to prevent the rise of radicalism and that want to gain a foothold in the economy. With Arab economics in suspended disarray and the global economy still suffering instability, the hope is that IMF reform will prove mutually beneficial. That remains to be seen but the outcome will make or break the success of Arab revolutions.

Negotiations about IMF reform began shortly after the effective revolts in Tunisia and Egypt, two countries touted as success stories by the transnational lending institutions up until their economically-induced revolutions. The IMF offered a multi-billion dollar loan in June 2011, about a month after President Obama embraced the sentiments of the Arab Spring and pledged $1 billion in debt forgiveness. In that speech he emphasized a need for IMF-World Bank intervention but cited the fact they had overlooked corruption in the past. Additionally, his appointment of a academic, developmental specialist to head the World Bank since has strengthen the prospects for effective reform within the transnational lenders. Understandably, many remain skeptical.

The Supreme Council of Armed Forces (SCAF) that ruled Egypt through its democratic transition rejected the IMF loan, ostensibly because it resembled an assault on sovereignty but also because it threatened the military’s dominant role over large sectors of the economy. A popular Egyptian Facebook page ‘DropEgyptsDebt’ stimulated effective Leftist opposition and Hamden Sabahi, who almost won the presidency, has touted a return to Nasserite, Arab socialism. President Morsi has endorsed IMF reforms. He classifies his economic platform as ‘renaissance’ and pledges to boost the private sector, limit the role of the state and attracts foreign direct investment (FDI). The question is how his platform will benefit the average Egyptian. IMF reform calls for raising taxes, repealing subsidies, fails to protect internal investment, open to foreign conglomerates and honors onerous debt. Such an agreement effectively resembles neocolonialism to many Egyptians and could provoke additional discontent.

It took until August, 2012 until a preliminary agreement was reached between President Morsi and IMF chief Christine Lagarde for a $4.8 billion loan. The proposed precursory conditionalities include higher taxes and a repeal of energy subsidies. In reality, servicing Egypt’s $35 billion in debt to foreign banks already takes $3 billion per year in interest payments. That is more than the cumulative amount of subsidies. And because foreign lenders certainly knew that most of the money borrowed under Mubarak would assist the corrupt regime and embed authoritarianism. A recent delegation to Egypt of 50 American multinationals was led by Paul Hormats, a former Goldman Sachs executive. Banks like Goldman Sachs contributed greatly to the decline of the Egyptian economy under Mubarak, at least for the average Egyptian. A general critique of present IMF-World Bank practice is that it helps utilize the debt accumulated under dictatorship to enforce privatization and effectively limit true democratization. The $35 billion in private Egyptian debt certainly helped prop up an economy that was guided by IMF-World Bank induced reform from the 1990’s, reform that similarly served only the interests of indigenous and foreign elite. Many Egyptians fear that agenda will continue now, only substituting members of the Muslim Brotherhood for the Mubarak regime.

Because previous privatization schemes in Egypt relied on FDI and tourism, it will be very difficult, especially in lieu of foreseen Islamist governance, to sustain Egypt’s present economic structure. It may also prove particularly difficult for average Egyptians to compete with large-scale foreign competitors. Thus many postulate that proposed reforms will hurt the poor and resistance is evident. Andres Bauer, IMF chief in the Middle East and North Africa, told the Wall Street Journal at the end of 2012 that, “the authorities intend to raise revenues through tax reforms, including by increasing the progressivity of income taxation and by broadening the general sales tax to become a full-fledged value-added tax.” However, when President Morsi angered secularists and pushed through an Islamist constitution, weeks of public protest forced the Egyptian government to request a delay from the IMF. The actual cause of the prolongation however remained mostly unaddressed in the mainstream press. The actual cause of delay was to the public’s vehement reaction to a sudden decree by Egypt’s prime minister during the constitutional protests that immediately raised taxes on luxury goods like cigarettes and alcohol but also on necessities like oil, cement, fertilizer, water and electricity. Within hours, further outrage forced Morsi to withdraw the order by posting on Facebook that he, “does not accept that the Egyptian citizen carries an extra burden without consent.” So much for the simple repeal of subsidies and increased taxation the IMF requires as a precondition for the loan.

Such taxes and subsidy repeal could mostly hurt the poor, would do little to create pathways to economic opportunity or to dismantle totalitarian structures of economic privilege surrounding an elite largely connected to the Egyptian military in receipt of over $1 billion in annual aid from Washington. In fact, the proposed approach is not only eerily similar to IMF structural adjustments under Mubarak but reminiscent of rapacious tax and privatization placed on Egypt during its colonial era when the poor were taxed to pay off usurious international loans and to fund the extravagant lifestyle of the Khedive (see Rosa Luxemburg’ s Accumulation of Capital). Secretary of State Kerry’s announcement that the relatively meager financial assistance was conditional on President Morsi’s endorsement of IMF conditionalities is certainly an effort to appeal to short-term economic unrest in order to induce the U.S.’s own preferred long-term economic outcome.

Back and forth negotiations occurring for almost two years represent one reason many Arabs suggest the U.S. backed the rise of the Muslim Brotherhood even before the Arab Spring. They trace the roots of that support to enforced parliamentary elections in 2005-06 and accompanying neoliberal reforms that brought prosperity to many Brotherhood members. Secularists of all ideological stripes see the release of aid now and an explicit endorsement and as an effort to replace the secular authoritarianism of Mubarak with an Islamist alternative. This is something leftist dissidents like Noam Chomsky have described as typical of a long history of U.S. efforts to “prevent democratization.” He states support for Somoza’s Nicaragua, the Shah’s Iran, Marcos in the Philippines, Duvalier in Haiti, Chun in South Korea, Mobutu in the Congo, Ceausescu in Romania and Suharto in Indonesia as authoritarian regimes not unlike Mubarak the U.S. supported in the name of economic liberalization only to be abandoned at the moment populations removed them from power. Nearly every one of these countries was immediately subject to IMF-World Bank intervention (see Naomi Klein’s Shock Doctrine).

Support for entrance into the West’s economic agenda precedes any concern with democracy. As a result, in almost every instance, most of those countries retain democracy but still suffer from rapacious elites that control the economic arena, and thereby politics. The apriority assumption that that the benefits of free market doctrine led to effective democratic reform have allowed for a mostly unrecognized correlation between things like torture and IMF-World Bank intervention. What the 1993 Vienna Conference celebrating the Universal Declaration of Human Rights once explained as, “the alarming evidence of massive human rights violations in every part of the world as a result of the international financial institutions or the Washington Consensus,” generally continues. Willing compliance with the neoliberal norms Thomas Friedman used to refer to as the ‘golden straightjacket’ guarantee that regimes will retain favorable coverage that touts the path to democratization in exchange for compliance in opening up the economies to foreign penetration and, as a consequence, political influence.

Far from conspiracy theory however, this necessitates awareness that economic interests and not concern for democracy drives behavior in the international arena. Those in the Arab world may recognize a western hand in their internal politics but they would do much better were they to understand they have the potential to effectively pursue their own interests. Were they to balance economic cooperation with the international community and a respect for sovereignty, they could induce an Arab block of rapid development while generating a general spread in the global balance of power.

All international politics represents a shadow cast by a transnational economics. In reality, a very real privileged global elite dictates much of policy. Rising inequality across the world is the rational consequence of such power imbalance, extended since the end of Cold War conflicts. While the U.S. hegemon struggles to maintain its relative dominance, most do not understand the effects its exorbitant economic privilege grant it in the international arena. While developing countries like Egypt are told to raise taxes, repeal subsidies and balance budgets to take on foreign loans, a U.S. economy carrying its own exorbitant debt and special-interest subsidies has used its status as the global reserve currency to print money, buy its own bonds, bailout a bankrupt financial system and exasperate enormous deficits. Similarly however, this series of bailouts, stimulus, low interest rates and the like have primarily benefited transnational elite’s interests.

Fareed Zakaria explained this imbalance in a recent Foreign Affairs article saying, “When Western governments and international organizations such as the International Monetary Fund (IMF) offer advice to developing countries on how to spur growth, they almost always advocate structural reforms that will open up sectors of their economies to competition, allow labor to move freely between jobs, eliminate wasteful and economically distorting government subsidies, and focus government spending on pro-growth investment. When facing their own problems, however, those same Western countries have been loath to follow their own advice.”

Indeed, since the near collapse of 2008, U.S. Federal Reserve policy has pumped liquidity into an American economy everyone knows will continue to suffer from pernicious public and private debt. In reality, the insertion of liquidity (QE 1,2,3…) has exasperated income inequalities domestically; U.S. unemployment remains high and jobs are paying much less while statisticians under-exaggerate core inflation. While such intervention has ostensibly been to help banks earn their way out of negative equity resulting from bad loans made during the real estate bubble, it has actually only shored up multinational firms and private, too-big-to-fail international lenders so that they can invest overseas and control the future of a globalized economic system where it is anticipated growth will have to come from the developing world.

The Fed’s zero interest rates may have artificially inflated stock prices to all time highs but American multinationals that make up the stock indexes now make most of their money overseas and stimulus and cheap money have accumulated an approximate $1.7 trillion on corporate books corporations currently pay no taxes on because they are designated for eventual investment overseas. In fact, inflation induced by the Fed’s QE2 policy sparked the initial protests of the Arab Spring which were largely a reaction to rising commodity prices. The primary reason the U.S. endorses Egypt’s participation with the IMF today is the prospects it will facilitate an opening for foreign investors and put those dollars in circulation to preserve the currency’s dominance. In a sense, the IMF’s existence is to serve as a mechanism for inserting countries of the developing world in participation with an imbalanced system. This system has tended to favor repressive transnational (and mostly Western) capital to the powers, also typically abused, of sovereign governance.

The potential to alter some of that imbalance may lie in the Arab world. Having suffered first from colonialism and then from authoritarianism, the 30-plus countries that make up the modern Middle East have virtually undeveloped economies, rich human and cultural capital, natural resources and 350 million consumers. If the Arab League were a single country, its GDP would have been $1.9 trillion in 2010. And a recent 5-year study by the Institute for Liberty and Democracy found that, 82% of businesses and 92% of landholdings were unrecorded and thus unprotected by the rule of law.” That led the study to estimate the size of Egypt’s “extralegal” economy at $350 billion, six times the level of FDI in Egypt. Additionally, the 2002 UN Arab Developmental Report may have highlighted inequality, suppression of freedom and lack of intellectual and technological contribution but it also stressed that the region holds the lowest level of abject poverty, no doubt a consequence of culture, religion and the remnants of an Arab socialism that once made Egypt especially influential.

Global powers are obviously aware of this economic potential. European and South American countries, Russia, China, Turkey, Iran, and others have made significant proposals for major economic cooperation since the Arab Spring. The New York Times called a recent conference organized by the U.S. Chamber of Commerce in Cairo as, “one of the largest trade delegations ever.” Nevertheless political gridlock and sustained violent contestation weakens the prospect for the stability that could allow for true sovereign economic development and, in turn, successful political outcomes.

Thus, the early struggle for democracy in the New Middle East may prove a contest of economic positions. At this time secularists have diverse and discombobulated platforms and Morsi’s backing of the IMF agenda may backfire. As a consequence, the true beneficiaries may be the salafists and that might actually not be so bad, even as it pertains to U.S. interests. The salafists have criticized Morsi’s use of international loans on the grounds that they are explicitly un-Islamic and bear interest. They recently published a list of Brotherhood who have been granted influential government positions and have cited gains made under previous neoliberal reform by key Brotherhood members. The salafists, Al-Noor party based its economic model on Brazil during the run up to their successful parliamentary elections. No doubt their reference to Brazil is a challenge to the military. Today Brazil is a rising economy and democracy but it was run by a right-wing military dictatorship from the Kennedy-era into the 1990’s. That dictatorship conducted its coup and preserved its power with Washington’s explicit backing on the grounds it “created a greatly improved climate for private investment.”

But economic outcomes in the Arab Spring will be as much about what happens to the global economy outside the Islamic world as within it. If the global economy returns to recession and crisis in the medium term, Egypt will be jumping aboard a sinking ship. Because modern mixed economies are compatible with Islamic economics and a role for the Islamic sharia is evident in all polling of the Arab world’s majority, Egyptians should encourage foreign investments and participation in the international order while developing a modern Islamic economic system. There is no doubt Egypt suffers from a lack of economic freedom. The 2013 Index of economic Freedom published by the Heritage Foundation documents totalitarian practices and an actual decline in economic freedom since the Arab Spring. Where IMF reform concentrates on repealing subsidies, it would do much more to enforce the repeal of regulation and legal mechanisms that privilege an Egyptian elite and to promote the break up statist monopolies in favor of Egyptian entrepreneurship granted protections form competition from foreign conglomerates. That would effectively address underlying Arab concerns while preventing similar outcomes in the past that enforced authoritarianism. It would also induce prosperous relations between Arab governments and Western nations who would garner leverage to guarantee pluralist politics and liberal reform that could achieve the expressed objective of economic penetration and foreign investment.

A modern Islamic economics is a completely free market. Subsidies and price controls are clearly considered illegitimate in Islam but the poor still benefit because there must be a coincident equality in opportunity and protection under the law that crosses ethnicity, religion and gender. The embedded emphasis on charity, education and government investment in infrastructure, technology and etcetera can only ensue with a write-down on the onerous Egyptian and confiscation from those that benefited from past corruption. This alters the role of the state so that it may restructure international loans and build on the already existent social service networks that helped to bring Islamists to power. The IMF, like Washington, would have to be willing to cooperate with Islamist regimes but collaboration along economic lines with emphasis on cultural nuance could induce an era of prosperity and effective relations that could revamp the entire global economy.

Additionally, the expansion of a shariah-compliant financial industry over a generation creates the potential for innovative products like sukook bonds that are attached to the underlying success of projects and thereby avoid the prohibition of interest, placing borrower and lender in shared profit-loss relationship. Other instruments like musharaka and mudaraba profit-sharing mechanisms set a basic structure for the sophistication of both capital markets and micro lending. The potential issuance of the gold dinar and silver dirham, required for zakat (charity) payment, provide a hedge against inflation and devaluation from central banks trying to print their way toward recovery. There are many methods for the issuance of a region-wide currency. In fact, there is much in the Islamic order that would benefit the Arab block and would help to alter IMF reform so that it effectively eases the need for austerity and transition to free market practice. True Islamic economic reform could open up the Egyptian economy in a manner that benefited the average Egyptian. For many reasons, it would be in the interests of all Egyptian politicians to recognize the Islamist majority, discuss the benefits with secularist skeptics and consider negotiations with the IMF and other foreign investors as a mechanism for dispelling the myths around the negative effects of Islamization and, at the same time, Arab concerns about Western conspiracy and loss of sovereignty.

Additionally, a truly “New” Middle East will only prove successful if it can promote regional cooperation. The Oxford Centre for Islamic Studies recently categorized the Arab world’s economic plight as due to “market fragmentations” – a consequence of centralized privilege and authoritarian economic networks. The institution documented that red tape, poor infrastructure and other barriers add 15% to the cost of Egyptian clothes and 10% to goods shipped in the region. It is actually more expensive to ship goods between two Middle Eastern ports than to send them from the region to America. If the rise of Islamist governance from Syria in the East to Morocco in the West can produce Arab cooperation and alter these trends, the entire region would become part of the global supply chain and its location, common language and connection to other majority Muslim societies would formulate the rise of a regional block no less magnificent than the rise of China or India.

And so, while participation with the international community is beneficial and necessary, it is also important to recognize the dangers implicit in allowing economic policy to be dictated from afar. An important example which would probably gain the appal of many ultraconservatives is the rise of modern India. India remained nonaligned throughout the cold war. Like Egypt, its roots are in British imperialism and an anti-colonial struggle. It attained independence from a puppet regime backed by the British in 1947 and while Pakistan remains in despotism and debt largely as a result of its reliance on Washington’s transnational institutions, India took an independent path in its rise as a growing democratic power. Historians like to credit liberal ideas inherited from the era of colonialism as influencing India’s rise but a new book, Righteous Republic by Ananya Vajpyi, documents that India’s nationalist leaders drew their ideas from the indigenous Hindic texts in recreating their country. Many of these traditional ideas were also compatible with contemporary Western liberal principles. The Muslim majority in the Middle East today would do a great deal of good were it to learn from the Indian experience. India today is not perfect but continues to evolve and few doubt its role as an influential international power. All of this is to suggest that the economic platform of the New Middle East must properly be viewed as needing to balance between participation with contemporary norms and the populist currents that demand freedom and justice and that have propelled the Arab uprisings.

The modern economic paradigm is the cause of exasperating discrepancies in income levels across the globalized world and the fundamental reality is that democracy has become increasingly subverted by an elitist interpretation of free market doctrine. Because the protests that sparked the Arab Spring were as much about economic opportunity as politics, a clear economic platform would go much further in redirecting sustained tensions into productive activity than any political appeasement. The Arabs demand freedom and, while underdeveloped, a truly Islamic economics is the best hope. It incorporates the best of free market doctrine while its prohibitions of interest and blind speculation have the potential to create an Islamic version of contemporary calls for a more conscious capitalism. In a world shifting from one of unipolarity to a balance of power system, the Arab world must utilize its common culture, language and religion to formulate a sovereign block that can contribute to altering the international arena.

That also means that antagonist anti-Americanism and radical populism will do little good. However Egyptians and Arabs generally, should look at the facts and be weary of participation with transnational institutions like the IMF. A rich history documents its subversion of democracy through primary support of a free market doctrine that has tended to preserve authoritarian political structures. As Dr. Henry Kissinger put in his book Diplomacy, which John Kerry quoted from extensively in his secretarial confirmation speech, “For the greatest part of humanity and the longest periods of history, empire has been the typical mode of government. Empires have no interest in operating within an international system; they aspire to be the international system. Empires have no need for a balance of power. That is how the U.S. has conducted its foreign policy in the Americas, and China through most of its history in Asia.” Today’s imperial institutions serve the interests of global capital that trumps the powers of social protection typically attributed to the nation state system.

The Muslim world is all too familiar with the process. It was born with the collapse of an Islamic caliphate that once united the region, was carved by the betrayal of the secretive Sykes-Pichot accords, creating nations led by secularists loyal to colonial powers. Support for authoritarianism and efforts to prevent sovereign development have been commonplace since but so too has a general internal backwardation. Understandably, anti-Americanism is rampant, but it is most important to recognize that the U.S. operates not primarily on humanitarian concerns but in the pursuit of its own interests. The U.S. economy is the most powerful and dynamic in the world and its democracy one of the most developed. Its not that it seeks to support corrupt dictatorship but it is undeniable that has often been an unintended consequence. Today, the U.S. government is just as controlled by corporatist and transnational, foreign interests as are the countries of the Middle East. Effective economic reform and cooperation could contribute greatly to rising demands for reform in the international arena and even help prevent a return to global recession.

Secularists, Muslim Brotherhood and Salafist leaders would do a great deal of good were they to realize this and not repeat past mistakes that used anti-Americanism to generate political allegiance. Were such developments to induce a model for regional reform and international cooperation, the Muslim world will play a significant role in the emerging balance of power system. If things continue toward division and disputation, the region will remain insignificant and the powerful will continue to divide its wealth and prosper from exploiting its strategic resources and location.

So too, American society suffers from a decline in infrastructure, unequal distribution of wealth, the harmful effects of borrowing and interest, over a decade of senseless war in the Muslim world and a xenophobic population ignorant of international affairs. The development of an Islamic economic block would even indirectly contribute to healing those problems. Recall that Americans first in Wisconsin, then with the Occupy Movement attempted to emulate the spirit of the Arab Spring. People everywhere are inspired by social struggle that represents true justice and progress. While in Egypt, Secretary Kerry asserted that, “the best way to ensure human rights and strong checks and balances in any democracy… is that there is the broadest possible political and economic cooperation.” However, that is a principle that underlies the rhetoric of all regimes whether they be communist, capitalist or Islamic. The proof, for the new democracies of the Middle East and the U.S. hegemon that suggests it backs them will be not in the rhetoric but in in the substance of policy and practice.

Contact Br. Younus Abdullah Muhummad at islampolicy@gmail.com or

Jesse Curtis Morton #79274-083
FCI Schuylkill
Federal Correctional Institution
P.O. Box 759
Minersville, PA 17954
USA

 

Advertisements
 
1 Comment

Posted by on March 27, 2013 in Letters from Jesse Curtis Morton, Risala

 

Tags: , , , , , , , ,

One response to “Jesse Curtis Morton: March 23, 2013 (Egypt and the IMF – An Economic Struggle for the Future of the New Middle East)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: