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Egypt’s Economy in Dire Straits Two Years After Fall of Mubarak

March 1, 2013 at 12:00 AM EDT

JEFFREY BROWN: And now to Egypt, where John Kerry arrives tomorrow for the first Mideast stop on his maiden trip abroad as secretary of state.

As the most populous nation in the Arab world, Egypt’s success or failure carries enormous stakes for its own people and for all the countries caught up in the Arab spring.

But, as Margaret Warner reports, the nation faces mounting economic woes.

MARGARET WARNER: More than two years after the fireworks, after Egyptians celebrated the ouster of longtime ruling President Hosni Mubarak, and voiced hopes their revolution would bring a brighter future for them all, Egypt is teetering on the brink of economic collapse.

WALEED SAAD, Cab Driver: Every day, we say tomorrow’s better. Be patient, tomorrow’s better. Tomorrow not come yet.

MARGARET WARNER: On the streets of Cairo, some of those who cheered Mubarak’s fall, like cab driver Waleed Saad, have grown tired of waiting.

WALEED SAAD: I think it’s five months, six months, and then everything will be OK after the revolution. OK, we can wait, no problem. But it’s two years, maybe more. Nobody know.

MARGARET WARNER: Ongoing political battles among Islamists, secularists and the security forces continue to spill out into the streets. The unrest has crippled Egypt’s tourism industry. The one-time hordes of visitors at the ancient Pyramids of Giza are but a memory now.

In Cairo, construction projects idle, as foreign and domestic investors stay away. The ranks of the unemployed swell, especially among the young, while Cairo’s aging infrastructure goes untended and frustration mounts over the frequent gas shortages. For Saad, the most painful part of this economic limbo is being unable to provide for his children.

WALEED SAAD: What can I do? I have no money. What can I do?

MARGARET WARNER: He’s not alone. The Egyptian government itself is running low on funds, announcing in February it had only enough foreign currency reserves to cover three months of food and fuel imports.

As fuel subsidies gobble up a fifth of government revenues, the budget deficit widens. And the Egyptian pound continues to tumble against the dollar. It’s fallen another eight percent since the start of the year, spawning a black market in foreign currency.

URI DADUSH, Carnegie Endowment for International Peace: The Egyptian economy is in dire straits.

MARGARET WARNER: Former World Bank officer Uri Dadush directs the economics program at the Carnegie Endowment for International Peace in Washington.

URI DADUSH: Egypt is not a basket case. It’s an economy that was one of the most dynamic of the world during the five years or so preceding the revolution. So, this is a huge contrast in terms of the economic performance compared to where we were a few years ago.

MARGARET WARNER: Egypt’s economic breakdown is partially driven by the country’s broken politics. Since the Muslim Brotherhood won parliamentary elections last year, and elected their man, Mohammed Morsi, as president, the country has careened from outburst to outburst.

The past few months have seen wave after wave of clashes in the streets, as demonstrators protested a perceived power grab by Morsi, the new constitution, and their sense of an overall lack of progress more than two years after Mubarak’s fall.

MICHELE DUNNE, Atlantic Council’s Rafik Hariri Center for the Middle East: Capital is a coward. You know, investors don’t like to invest in a situation that they feel is unsafe.

MARGARET WARNER: Michele Dunne, formerly with the National Security Council and State Department, heads the Middle East program at the Atlantic Council in Washington.

MICHELE DUNNE: Everyone’s afraid to invest. There’s political instability. There’s widespread feeling of insecurity. And so Egyptian investors are taking their money elsewhere. And, of course, in that kind of climate, then foreign investors are not coming in with their money.

MAN: May I help you here? What about scarf? It’s made of cashmere. Want to spend some money here? 

MARGARET WARNER: At this souk in central Cairo, vendors are paying the price as they try to hawk the necessities of life to locals, and hookahs, shawls and mementos of Egypt’s ancient past to tourists.

MAN: No business. There is no business because we — like all world know and all world watching TV, we have a lot of problems. But we can’t make this — control this problem right now, because we don’t have security.

MAN: After revolution, everything in Egypt below, below in economy, in tourists, in the work, in the money. Everything will be down, below. It’s no good time now.

MARGARET WARNER: There’s one prospect of hope on the horizon, a $4.8 billion dollar loan from the International Monetary Fund, in exchange for economic reforms in Egypt, like reducing those costly fuel subsidies and raising tax collections. But the loan has been under negotiation for more than a year, without a deal.

Securing the IMF loan is crucial for Egypt’s future, says the Carnegie Endowment’s Dadush, not only for the money itself, but for the reassuring signal it will send to investors.

URI DADUSH: The loan is vital because it comes with a package of economic reforms that are designed to stabilize the public finance of Egypt, reduce the deficit and enact a series of reforms that will be investor-friendly on the one hand, but hopefully also not socially disruptive, not too socially disruptive on the other.

MARGARET WARNER: Michele Dunne agrees, but fears the Morsi government will flinch from enacting tough measures, just as it backed off in December from its plan to curtail fuel subsidies.

MICHELE DUNNE: They have been afraid to put it into place because they are afraid of creating unrest. It’s very difficult for Morsi to take difficult steps that might be unpopular with the public and might generate opposition from the street. It’s difficult for him to take these steps without political allies who will support him in this process.

MARGARET WARNER: The divisions deepened this week. At the urging of opposition leader Mohamed ElBaradei, the main opposition alliance, the National Salvation Front, announced it would boycott parliamentary elections in April. Morsi insists he wants to bridge the political impasse.

PRESIDENT MOHAMMED MORSI, Egyptian: I tell everyone from all colors of the spectrum, my brothers in the different political parties to come, to sit and put in place guarantees that we agree on together to ensure the fairness of the upcoming elections.

MARGARET WARNER: But Michele Dunne doubts Morsi sees the connection between Egypt’s political problems and its economic ones.

Do you see any signs that President Morsi understands this?

MICHELE DUNNE: He continues to say to the opposition, come to a political dialogue, but he doesn’t show any signs of being willing to compromise with them.

So far, he’s just trying to move forward, move forward to elections, with the idea that, after that, they will be able to institute economic reforms and get the IMF package. But I want to note this has been going on for two years now.

MARGARET WARNER: All this was reported to have been the subject of a phone call President Obama made to President Morsi this week, paving the way for new Secretary of State John Kerry’s arrival in Egypt this weekend.

Dunne says Secretary Kerry needs to connect the dots for President Morsi between the economic assistance he wants and the political bridge-building he needs to do at home.

MICHELE DUNNE: It’s important that Secretary Kerry tells President Morsi, we want to help you economically, but we think you need to compromise with other political forces and keep a democratic political process on track.

MARGARET WARNER: Back in the souk, among the tales of woe are also signs of the famed Egyptian patience.

MAN: Morsi, he can’t change what’s happened in 30 years in six months or seven months. He do what he do in politics. And us, we must — people, we must work. We must look for future.

MARGARET WARNER: The question is how long that patience will hold out if the country’s political leadership doesn’t do the hard work that needs to be done.

JUDY WOODRUFF: The Cairo cab driver in Margaret’s story had more to say about his frustrations with the economy and his hopes for his children. Find his story on our website.