Look Homeward, Mubarak

The June 26 assassination attempt on Egypt's President, Hosni Mubarak, once again shines the spotlight on the domestic failings of the Egyptian regime. The Egyptians are a big success overseas, playing a key role in the peace process and other international diplomacy. However, the foundation of the regime--the domestic economy--is a shambles of failed socialism.

Although five of Mubarak's attackers have been killed, it is not clear whom any of them represented. But it seems likely they belonged to Egypt's militant Islamic organizations. The Egyptians have accused neighboring Sudan, which is governed by an Islamic regime, of complicity, and they may have a point.

NO BOLD MOVES. Still, the root problems are at home. Mubarak has brutally suppressed the militants for years but has been unable to completely eradicate them. One reason is that Egypt's increasingly wretched economic conditions continue to provide the militants with new recruits. Egypt, like other Arab countries, is falling behind much of the developing world. Salaries average only about $60 a month. Economic growth is at best running at 2.5%--just about even with population growth and nothing like the 6% to 8% that is needed to create jobs for the 500,000 new entrants to the work force each year.

What seems to be needed is a structural change, but Mubarak, like his predecessor, Anwar Sadat, who was assassinated by Islamic groups, appears unwilling to make bold moves. To be sure, he has made some progress. He has encouraged a revival of the stock market and freed up the byzantine currency system. He has also slashed the budget deficit and halved inflation to about 12%.

However, about two-thirds of industrial output remains in the public sector. Mubarak, 67, is a cautious man who doesn't rush into anything. He has dabbled with privatization, but so far he has sold off only about $600 million in public companies. Estimates of the total value range as high as $25 billion. A massive sell-off would be risky. It would be politically controversial and put more people out of work. The alternative, muddling along with an increasingly unsustainable system, is risky as well.

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