Editorial Board

Use Free Markets To Win Over Egypt’s Muslim Brothers

The outraged reactions within and outside Egypt to the Muslim Brotherhood’s recent decision to contest the presidency are misplaced.

So what that the Islamist group originally said it would sit out the race? Egypt is supposed to be a democracy now, and the Brotherhood’s Freedom and Justice Party has a right to compete. In fact, as the party that won more votes than any other in parliamentary elections, securing 47 percent of seats in the more powerful chamber, it arguably has an obligation to its supporters to field a candidate.

Although the Obama administration would prefer a smaller role for the Brotherhood in Egyptian politics, it has prudently not grumbled about the group’s successes and ambitions. Instead, the administration has used its statements to stress first principles: the importance of democratic processes, civil rights, accountability. U.S. diplomats have also reached out to Brotherhood leaders, whom they shunned before the uprising that overthrew the Hosni Mubarak regime last year.

Now, with Khairat el-Shater, who served as the Brotherhood’s deputy leader, running in the May 23-24 presidential election, the organization may well command Egypt’s executive branch as well as dominating parliament.

Accordingly, the Obama administration must prepare for the possibility of Islamist political control of the most populous Arab country. Sadly, that also means the U.S. should brace for a further deterioration of ties between Egypt and Israel. Although openly hostile to Israel, the Muslim Brotherhood has said it would not abrogate the 1979 peace treaty. The U.S. would doubtless need to step in to manage potentially explosive disputes, for instance over increasingly frequent terrorist infiltrations from Egypt to Israel.

There is a promising basis for U.S.-Egypt cooperation, however. Any new Egyptian government is going to face pressing economic problems. Since the political tumult began in February 2011, investment and tourism have plunged, and foreign reserves have been cut in half, to $15.1 billion. The economy shrank by 0.8 percent last year. On the other hand, the Brotherhood’s supporters include many of Egypt’s small entrepreneurs, who are eager for government to address these ills. This provides the U.S. and other Western countries a chance to make common cause with the group.

To exploit this opportunity, the U.S. should start by judging the Islamists of the Brotherhood by their actions rather than by its worst fears. The organization has radical roots; its original goal was a state ruled by Islamic law. However, of late, the group has demonstrated a moderate, pragmatic bent, similar to that of the Islamist party Ennahda, which leads Tunisia’s coalition government. It speaks of wanting a constitutional, democratic and civil state, with Islam playing a key role.

To encourage this modulated approach, the U.S. and its allies should invite members of the Brotherhood to important international forums, such as side meetings of the Group of 8 and Group of 20 summits. Under the oppressive Mubarak regime, many within the Brotherhood, including Shater, spent years in jail or were otherwise isolated from the world because of the underground nature of their political work.

The Brotherhood’s improved familiarity with global economics might ease parliament’s approval of a long-delayed $3.2 billion loan from the International Monetary Fund. The transitional military government appears to be leaning toward signing, but the Brotherhood has . Shater argues that Egyptians should solve their own financial problems, but such reasoning is bleeding Egypt’s treasury dry. Only the security of the IMF loan can unlock billions in donations promised by the Gulf countries and attract the foreign investment Shater desires.

More broadly, the U.S. needs to rethink its aid to Egypt. The generous package -- $1.3 billion in military aid and $250 million in economic and political support this year -- dates back to the 1979 treaty with Israel. But the largesse and the imbalance in favor of khaki no longer make sense. Israel faces no danger from an Egyptian army that needs to be bought off, the U.S. has a diminished ability and willingness to fund foreign aid, and Egypt is in the midst of a revolution that has prompted newly elected parliamentarians to call for an end to U.S. assistance that they associate with the Mubarak regime.

Still, Egypt could use significant economic support. To neutralize the taint of aid coming from the U.S., the administration should bundle at least part of its assistance with allies, notably in the European Union. This would also reduce redundancy in the remarkably wide array of aid programs that benefit Egypt.

Given Egypt’s intense nationalistic sensibilities, support that makes its private sector more competitive would be the most welcome. In particular, the State Department’s Enterprise Funds, which make loans to and investments in individual companies, deserve expansion. So do existing programs that finance infrastructure projects and job creation, increase trade within the Arab world by standardizing such things as tariffs, and guarantee a percentage of loans that Arab banks make to small businesses. A critical requirement for all these efforts should be that they loosen the military’s grip over Egypt’s commercial enterprises.

The Brotherhood’s merchant members understand well the benefit of such programs. By building on the shared value of free enterprise, the U.S. can preserve influence with a future Egyptian government and help focus the Brotherhood on critical economic issues that, left unaddressed, will foment turmoil and extremism.

    To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net .

    Before it's here, it's on the Bloomberg Terminal.