Egypt’s Transition Needs Some Quiet U.S. Help

If ever there was a moment for the U.S. to lead from behind, it is in Egypt and it is now.

The popular revolt that began in Cairo’s Tahrir Square two years ago today was the most inspiring of the Arab Spring, but what has followed has proved to be the opposite. Amid the chaos, the U.S., Europe and others are holding back on commitments to the Arab world’s largest and most important country.

Every step along the way since former President Hosni Mubarak left office in February 2011 has demonstrated how not to build a functioning democracy: from the overlong assumption of power by the Supreme Council of the Armed Forces, to the crackdown on U.S. pro-democracy organizations a year ago, to the Supreme Constitutional Court’s decision to dissolve Parliament last June, to President Mohamed Mursi’s usurping of powers in November.

Each step helped to polarize the nation, culminating in the violent clashes between Islamist and secular protesters late last year. Each step fed cynicism about what a constitution means and how a democracy can work.

The turmoil shriveled Egypt’s tourism industry, foreign investment and growth rate -- from 5 percent before the revolution to 2 percent last year. Any optimistic scenario for Egypt will have to reverse that dismal trend: Even at its peak growth rate of 7.2 percent in 2008, the economy produced barely enough jobs for the numbers of young people flooding into the labor market. In Egypt -- as in Tunisia and Libya -- the revolution was as much about jobs as freedom.

External Help

Unlike Libya, Egypt needs a lot of external financing -- an estimated $22 billion this year alone -- just to stay afloat. And Egypt can be frustratingly hard to help. When the U.S. gave more than $60 million for democracy promotion after the revolution, the Egyptian response was to prosecute the recipients.

None of these setbacks, however, are arguments for disengagement. The U.S. need not add significantly to the roughly $2 billion it has already committed (though not delivered) to Egypt, and the $1.3 billion in military aid it provides annually to persuade Egypt to keep the peace with Israel. Nor should it be seen as trying to shape the country’s future -- Egypt and the U.S. need each other, but they don’t like each other enough for that.

So what can be done? In one sense, everything is on hold until parliamentary elections in the spring. Only then can the government be expected to sign up for the essential $4.8 billion International Monetary Fund program that would unlock money from donors and investors. The current government accepted the deal in December, but then asked to delay the program after the reaction to one of the conditions -- an unpopular tax increase -- caused it to the measure within a day. The deal is now being renegotiated.

As former Finance Minister Samir Radwan writes on Bloomberg View, the IMF program would provide the meaningful economic policy that Egypt lacks. A recent Atlantic Council paper describes how nobody knows if the next government will take the IMF route or choose a populist path that won’t require it to raise taxes, privatize state assets or cut the roughly 10 percent of gross domestic product that the government spends on subsidies. That path would be disastrous for Egypt and the region.

To get back on track, the new government will have to accept the IMF deal and be less domineering. Meanwhile, the secular opposition will have to give up its efforts to bring down the elected Islamist government by using politicized courts, and instead build up the party organizations that win elections.

Stronger Framework

The U.S. and other outside powers can play a persuasive role. As we argued at the beginning of this series on the Arab Spring, Egypt, Tunisia and Libya need a stronger framework to help them with the transition. The U.S. is the only country that can coordinate Egypt’s donor countries -- Qatar, Saudi Arabia, Turkey and the European Union -- within such a framework. It’s also in a unique position to leverage the IMF and World Bank to increase their loans to Egypt when the time comes.

The U.S. can do more in two other areas. First, it should resume negotiating a free-trade agreement with Egypt. The EU has had one since 2004, and while Egypt’s Salafists will probably balk, business people -- including many in the Muslim Brotherhood -- would welcome a U.S. equivalent. More immediately, the U.S. could increase the range of tax-free goods that can be exported to the U.S. from Egypt’s Qualified Industrial Zones.

Secondly, the U.S. administration can be more forceful on democracy and human rights. It has understandably soft-pedaled the promotion of stronger democratic institutions since the arrest of U.S. nongovernmental-organization personnel. A new Egyptian law on nonprofits, and trials, will probably follow the elections, clearing the way for this to change. The U.S.-Egyptian security relationship may be paramount, but the U.S. must also stand up for democracy and human rights if it’s to stand for anything.

This would be leading from behind, not in a military campaign as in Libya, but in an economic and political one to reboot Egypt’s transition. It’s worth the attempt.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at