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Egypt's military regime is challenged

The 25th of January revolution in Egypt that swept Mubarak from power after 30 years vented simmering social, political and economic pressures which had been building for a long while.

Revolutionaries are keen to shed the old “puppet state” stigma from the days of deposed President Hosni Mubarak, whose regime received more than $50bn from the US during his three decades in power.

Egyptian finance officials are scrambling to find internal fixes so that foreign aid isn’t necessary to cover a reported $28.5bn deficit. Polls show that an overwhelming majority of the population rejects foreign aid, especially from the US, even as the country struggles to recover.

A Gallup poll found that 75% of Egyptians oppose US aid to political groups, and 68% think the US will try to exert direct influence over Egypt’s political future. In the last week, the military council that runs the country rejected the caretaker government’s proposed budget largely because of its dependence on aid from the US and other foreign donors.

Egypt also retreated this month from seeking loans from the International Monetary Fund and the World Bank after activists complained that such arrangements compromise the country’s sovereignty. Instead, a new package of help for housing and small firms has been agreed with the United Arab Emirates.

Foreign aid typically comes with conditions about how such money is spent, which many Egyptians interpret as making the country beholden to Western interests. The IMF’s offer over the weekend of a $3bn loan to Egypt came with veiled conditions that suggest “it expects the country to alter its subsidies system and adhere closely to free-market principles despite previous claims that IMF assistance is unconditional”, according to a Cairo newspaper.

Pro-democracy activists say the long-time annual US aid package of up to $2bn – $1.3bn of it for the military – ensured that Mubarak’s authoritarian regime upheld the unpopular peace treaty with Israel and kept the Suez Canal open to facilitate American military operations in Iraq and the region. The joint US-Israel-Egypt enterprise that allowed tariff-free exports to the US must also be under threat.

The Muslim Brotherhoood's newly established Freedom and Justice Party is planning to focus on replacing Egypt's use of financial instruments such as derivatives and futures, with the three-decade old Islamic system which operates by sharing profit or loss between the bank and its clients, instead of interest, which is forbidden.

John Sandwick, an Islamic finance adviser in Switzerland, believes that introducing more Islamic finance would not necessarily solve the country's economic problems. "Shari’ah is a method of doing business that doesn't stop speculative frenzies and impractical or unethical behaviour, as we've seen all too clearly," he said.

Nothing is settled, as blogger Jesse McLaren, who has followed the Egyptian revolution, notes:

Despite the removal of Mubarak, his regime is still intact: the emergency laws and military trials of civilians are still in effect; police cracked down on demonstrators on Nakba Day and beat a bus driver to death in June.

Workers are demanding a minimum wage of 1,200 Egyptian pounds ($200) a month. Women demonstrating in Tahrir on International Women's Day for government-funded child care, called for an end to discrimination in hiring and promotions, and an end to sexual harassment and violence against women. Peasants have began reclaiming the land. McLaren rightly points out:

But these demands challenge the military regime and the corporations that support them, which persists despite Mubarak's overthrow. As a striking doctor said, ‘Every percentage point for increasing health care will come from the budget of the Ministry of Interior and other parts of the oppressive machine.’ The same economic crisis that contributed to the revolution is driving a deeper wedge between political reforms gained and the social and economic demands that have yet to be met.

The outcome of the political struggle will determine whether the country continues as a subordinate part of the web of finance and trade relations that unite the global capitalist economy or whether the popular revolt finds a leadership that sets out on a new path to not-for-profit social ownership.

Gerry Gold
Economics editor
6 July 2011

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