Mursi Pushed by Public on Economy Brokers Gaza Cease-Fire

When Israel launched air strikes on the Gaza Strip last week, Egypt’s Muslim Brotherhood said the “Zionist entity” had committed a “criminal aggression.” President Mohamed Mursi, drawn from the same movement, said only that it was unacceptable “under any circumstance.”

The contrast showed Mursi’s moderation and efforts to find a balance by his government that helped broker yesterday’s cease-fire. Faced with a struggling economy, a public quick to protest if its demands aren’t immediately met and Egypt’s dependence on about $1.3 billion in yearly U.S. military aid, Mursi needs to retain the global credibility that helped his country this week sign an initial accord for a $4.8 billion International Monetary Fund loan.

“Mursi has turned out to be a much more moderate politician than everybody expected, so he does have some role as an honest broker,” said Jan Techau, head of the Carnegie Endowment for International Peace office in Brussels. He’s “also trying to gain standing by showing he’s not only on the side of Hamas. Egypt is in turmoil, and the last thing he needs is a hot war that will inflame the Egyptian masses.”

Mursi has to weigh the Muslim Brotherhood’s support for Hamas -- considered a terrorist organization by the U.S., Israel and the European Union -- as well as domestic anti-Israeli sentiment. More than 400 Egyptian activists entered Gaza on Nov. 18 through the Rafah border crossing, followed later by the head of the Brotherhood’s political party, in a show of solidarity. Hospitals in Sinai have received Palestinian wounded.

Clinton Praise

He also met with Hamas’s political leader, Khaled Mashaal, and discussed the conflict with a series of world leaders, including President Barack Obama, in a frenetic round of diplomacy that earned him praise from the U.S.

“I want to thank President Mursi for his personal leadership to de-escalate the situation in Gaza and end the violence,” U.S. Secretary of State Hillary Clinton said at the announcement of the cease-fire yesterday in Cairo. “Egypt’s new government is assuming the responsibility and leadership that has long made this country a cornerstone of regional stability and peace.”

Clinton’s remarks were “effectively an endorsement for the current Egyptian government and security apparatus and significantly more supportive than previous statements,” Emad Mostaque, a London-based strategist at Religare Hitchens Harrison, an emerging-market investment adviser, said in an e- mailed note.

Shifting Support

Mursi’s approach to the Gaza crisis has been starkly different than that of his predecessor, Hosni Mubarak, who was seen by many Egyptians as collaborating with Israel against Gaza’s Hamas rulers. The shift is linked to Hamas’s pedigree as a movement born from the Brotherhood.

The Brotherhood’s leader Mohamed Badie today said “jihad” was obligatory for Muslims to return Palestinian territories and that “all possible means” should be used to realize that goal, according to an e-mailed statement.

Last week, Hamas leader Ismail Haniyeh and Mashaal both applauded Mursi’s dispatch of his premier to the territory, saying the move showed that today’s Egypt is different. Mashaal repeated the praise yesterday.

The conflict afforded Egypt’s new government an opportunity to put to use the Islamist credentials that have been a source of concern for secularists and others in the country -- allowing it to play the foreign policy card to win greater legitimacy.

Hamas is shifting its allegiance toward the Egyptian, Qatari and Turkish camps from its traditional Syrian and Iranian backers, in a move that “offers real opportunities for engaging” the Islamist group, said Shadi Hamid, director of research at the Brookings Doha Center.

Egyptian Balance

The deal puts Egypt in the position of being the party to which either side will turn in the case of violations of the terms -- a role that thrusts Mursi’s government into the limelight as it grapples with domestic challenges, as well.

Faced with an Egyptian public that has, at least on the surface, been sympathetic to the Palestinian cause, Mursi is trying to balance safeguarding his nation’s interests with appeasing the population. Clashes between security forces and protesters in Cairo continued for a fourth day today, developing from demonstrations commemorating the anniversary of a fatal protest last year and sparking calls for mass rallies tomorrow and for the firing of the government.

Prime Minister Hisham Qandil was greeted with insults by local residents during a visit to the site of a fatal train collision in southern Egypt on Nov. 17 that killed about 50 children.

Hard Diplomacy

“What he is trying to do is hard, and he has not made any grave errors,” Jon Alterman, director of the Middle East program at the Washington-based Center for Strategic and International Studies, said by phone about Mursi. “This is not what the government of Egypt wants to deal with right now, which is very hard diplomacy when they’re trying to focus on economic and domestic governance.”

Mursi inherited a nation whose economy was battered after the uprising against Mubarak and has yet to rebound as near- daily protests and strikes undercut productivity while curbing tourism and foreign investments, two key revenue sources. In addition, international reserves at $15.5 billion remain more than 50 percent below their levels before the start of the revolution in January 2011.

Officials including Qandil say the $4.8 billion in IMF funds agreed to on Nov. 20 are necessary to win support from other donors and help close a budget deficit forecast by CI Capital economist Alia Mamdouh and others to miss the 7.6 percent target estimated by the government for the current fiscal year.

Top Issue

“The economy is the No. 1 issue in Egypt for people and for Mursi himself,” said Yasser El-Shimy, a Cairo-based Middle East analyst at the International Crisis Group. “Mursi realizes that he cannot cement his rule” unless “people see some tangible, real improvements in their standards of living. Foreign policy becomes dependent on domestic politics in this scenario.”

Egypt’s domestic debt has rallied since Mursi’s election in June, sending the yield on one-year notes down from a record 15.97 percent to 12.99 percent at an auction last week. That’s its lowest level since August 2011. The benchmark EGX 30 Index (EGX30) of stocks has gained 51 percent this year, making it the world’s best performer among 94 indexes tracked by Bloomberg.

The nation’s 5.75 percent dollar-denominated notes due April 2020 have also surged since Mursi’s win, sending the yield down 275 basis points, or 2.75 percentage points, to 5.12 percent, according to data compiled by Bloomberg. The yield fell to the lowest level since December 2010 after the securities were raised to overweight Nov. 20 at Bank of America Merrill Lynch upon the country’s signing of the IMF agreement.

Raise the Ceiling

Gains on the foreign-policy front can also help boost Mursi’s standing at home, said Omar Ashour, director of the Middle East program at the U.K.’s University of Exeter.

“He is going to push to raise the ceiling a bit,” he said of Mursi’s approach to the Gaza conflict and pressure on Israel. “Mubarak set the bar too low, so anything Mursi will do will significantly depart from what Mubarak has done.”

To contact the reporter on this story: Tarek El-Tablawy in Cairo at teltablawy@bloomberg.net; Mariam Fam in Cairo at mfam1@bloomberg.net

To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net;

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