Egypt: Money Makes the Muslim Brotherhood Go ‘Round

Source: CS MonitorHistorians and economists will mark August 2012 as the month in which President Morsi consolidated the power of the Muslim Brotherhood in Egypt. The Arab Spring left the Egyptian economy in ruins. With $35 billion in debt and under $15 billion in reserve currency in the Central Bank of Egypt in July 2012, the newly elected President inherited a bleak financial portfolio on his assumption of power. However, what most Western observers have missed in the analysis of Mohamed Morsi’s rise to power is how the financial woes of Egypt shaped the political scene.


On February 15, 2011 – four days after the Arab Spring’s peak in Tahrir Square – the Muslim Brotherhood formed the Freedom and Justice Party and co-opted the overthrow of a dictator that had banned the Islamist organization from politics in Egypt. By 2012, as predicted, the organized power base of the Freedom and Justice Party took the lion’s share of votes in the democratic elections that formed the Parliament. To avert the debt crisis threatening Egypt, a loan of $3.2 Billion was sought from the International Monetary Fund.


By April 2012, the message was clear: gaining a loan from the IMF to overcome the immediate short term challenges of paying civil servants would require a consensus of all parties involved in the Egyptian government. The front-runner for the presidential slate of the Freedom and Justice Party, at the time, Khairat al Shater, noted that the terms of the loan needed to be changed before the interim government could accept the financial arrangement. These were the first cracks in the IMF loan bid and eventually guaranteed that a consensus would not be reached. The following month, to bolster investor confidence in the viability of the Egyptian economy and boost the interim government’s chances of receiving the IMF loan, Saudi Arabia deposited $1 billion into the Central Bank of Egypt. Two days after Saudi Arabia deposited the funds, the debt swap mechanism proposed by the United States to forgive $1 billion in Egyptian debt fell through.


The requirement of a consensus in Parliament on the acceptability of the terms of the IMF loan ultimately served as the catalyst for the dissolution of the parliament in mid-June. The democratic process in Egypt, with a dozen political parties provided too many avenues for dissent to upend the efforts at achieving a united voice on the matter. It was upon this stage that the Chairman of the Freedom and Justice Party, Mohamed Morsi, was elected President of Egypt.


Recognizing that the FJP had won over half the seats in Parliament, the newly elected President Morsi, in defiance of Egypt’s highest court and the military, convened the elected leaders of Parliament on July 10 to advance the notion that the military did not hold the constitutional authority to remove Parliament from power. Brotherhood supporters in Tahrir Square, chanted “Down, down with military rule.” The generals did not respond. The question of the validity of the elections, raised by the court, evaporated in the triumph of civilian power.


The August 5 attack by Salafi terrorists on Egyptian border guards, which left 16 soldiers dead, provided President Morsi with the justification for mobilizing military forces into the Sinai and pressing the envelope on the terms of the Egyptian-Israeli Peace Accord in what is now known as Operation Nisr (Operation Eagle). The terms of the agreement stipulated that Egypt would notify Israel of any move to militarize the Sinai peninsula. Three days after the Salafi strike, Morsi launched helicopter gunship assaults on Salafi jihadi positions in the desert, killing 20. Within days, the leader of the Palestinian Authority, Mahmud Abbas, called for Cairo to shut down the tunnel network into Gaza and provided Morsi with names of radical Salafists known to work in the Sinai. Hamas, the Palestinian arm of the Muslim Brotherhood, submitted to Morsi’s request to round up Salafi jihadists in Gaza for questioning as the President set about destroying the tunnel entrances on the Egyptian side of the Rafah crossing.


The August 5 attack on the Kerem Shalom crossing provided the Muslim Brotherhood leader with the opportunity to defeat any erstwhile Sunni rivals that would challenge the authority of the Egyptian Presidency, militarily. The militant strike also provided President Morsi with the opportunity to strip the security establishment leaders of their power base. Within 10 days, six members of Egypt’s military council had resigned or were sacked. The defense minister Field Marshall Hussein Tantawi, who earlier delivered the dissolution decree to the Parliament and assumed power through the presidential election, was dismissed. The armed forces chief of staff General Anan was also relieved of command. The intelligence chief General Murad Muafi was dismissed as were two security officials in the Sinai and the Military Police Chief.


Almost unnoticed in the flurry of dismissals, resignations and replacements, was President Morsi’s appointment of the former judge Mahmoud Mohamed Mekki as the Vice President of Egypt.


The consolidation of military and political power by the new Egyptian President was a master stroke of crisis management. Amid these rapid developments, Qatar made good on a 2011 pledge to invest $10 billion in the Egyptian economy by depositing $500 million in the Central Bank of Egypt, with the acknowledgment that the dispersal was the first tranche of a $2 billion allocation.


The combined financial support of Saudi Arabia and Qatar allowed the Egyptian government to weather the transition period of the interim government. The consolidation of power by the Morsi Administration, the economic support of Egypt’s Sunni benefactors and the unified voice of the FJP-dominated Egyptian Parliament have now paved the way for the IMF loan to commence. The terms sought will likely include a VAT-tax and the United States may place pressure on the organization to adjust the currency exchange rates of the Egyptian pound; however, the Morsi Administration is now in negotiations for a $4.8 billion bridge loan from the IMF and have received the support of the FJP leadership to strike a deal by mid September.


The IMF loan will likely stave off the looming currency crisis that is causing foreign investors to shy away from Egyptian commercial options. One official at the Central Bank of Egypt predicted that Egypt’s foreign reserves would jump from $14.4 to $21.2 billion following Qatar’s deposit of the remainder of its initial $2 billion offering and would climb higher if the IMF agreed to the $4.8 billion loan.


Morsi’s consolidation of power in August 2012 will be analyzed for decades to come. Perhaps more impressive than the local consolidation efforts were the advances made toward the Muslim Brotherhood’s regional consolidation of power by the Morsi Administration. His decision to call for Assad to resign in Syria and push for a “Committee of Four” made up of Saudi Arabia, Turkey, Egypt and Iran effectively changed the dynamics of the peace effort. Rather than an international focus, Morsi offers a regional solution and is seeding that mission with official visits to China and Russia.  In an official address, discussing the developments in Syria, President Morsi brushed aside Israeli concerns over his insertion of tanks and other armor into the Sinai (without consulting Israel) as an internal security matter with no malice of intent, and claimed the precedent did not challenge the terms of the Egyptian-Israeli Peace Accord.


One thing is certain, Morsi has arrived. Whether the young President can drive a wedge in the Shia Crescent over Syria or not in his first regional effort to realign the balance of power is immaterial – world leaders are fast recognizing that a new force of nature is at play in Egypt.


Gary H. Johnson, Jr. is the Senior Advisor for International Security Affairs at the Victory Institute and a Level I Researcher at Wikistrat