The Political Economy of Reforms in Egypt. Khalid Ikram
the great majority—have been predatory and despoiled their countries.
“Weak” dictators are those in danger of being overthrown. Alesina argues that when such a dictator is in danger, his incentives are likely to be similar to those of an incumbent political leader in a democracy who faces an uncertain election. In such a situation, therefore, one would expect to see fiscal policies that are generally “loose,” in the sense of increasing budgetary expenditures, especially on items such as consumer subsidies, and “opportunistic,” targeting budgetary expenditures toward constituencies (such as the armed forces and the security services) that would shore up the ruler’s support.
Egypt’s history provides examples of such political-economy decisions. Chapter 5 describes how, when confronted with unrest following an attempt to rationalize some consumer subsidies, President Sadat chose to jettison the prime minister who had argued for reform in favor of the minister of interior, who was in charge of the security services. Again in 1977, following the riots over the cut in the bread subsidy, Sadat rapidly rescinded the price increases and asked the prime minister to personally take charge of the Ministry of Interior.
Egypt’s leaders are not alone in the opportunistic use of fiscal and military policies. Several Latin American dictators followed opportunistic policies, especially by using public expenditure to benefit key constituencies, particularly the military, when the ruler felt he might be overthrown (Alesina 1992).
An allied question is whether authoritarian/dictatorial governments are able to push through reforms more quickly than more participatory regimes. Mau offers an interesting example that would not be entirely foreign to the thinking of many policymakers working under authoritarian regimes.
Count Sergei Witte, a prominent reformer under the Czars,20 used to say that there were two essential elements for radical reforms in Russia: absolute monarchy, because you need not pay attention to your critics if His Majesty supported you, and speed, because somebody might persuade the Czar to change his mind before the reform could be made irreversible. (Mau 1994, 6)
There has been a fair amount of discussion in the literature on the subject. A useful distinction is made by Haggard (1994, 467–71) between the initiation of reform and its consolidation. He argues that initiating reform is facilitated by an independent or autonomous executive, while consolidating reform requires the support of institutions, such as legislatures and even interest groups. The application of such criteria in Egypt’s case is a little problematical. Although the country was ruled almost continuously by authoritarian regimes since 1952, reform proceeded only slowly, and generally only when the economy was in extremis. A fruitful focus of research in Egypt’s case, therefore, would be what circumstances made the ruling autocrat risk the change that a significant economic reform would inevitably bring. Some answers are attempted in this book, but the matter requires more exhaustive examination.
The Role of the Foreign Patron
A factor that complicates the political-economy response, and one that probably occurs more frequently in developing-country dictatorships, is the role played by a foreign patron. In Egypt’s case, the latter was the Soviet Union in President Nasser’s era and is the United States at the present time. The interests of the foreign patron and its attitude toward the client country’s political economy can be quite complex, and the interplay of their interests and powers can be a major determinant of political-economy outcomes. The general experience is that if the patron has to decide between pressing the client to adopt reform policies or to support him in resisting reform because of a fear that otherwise the client will lose office, the patron will opt for support even if the client is undeserving. The attitude of the patron is epitomized most colorfully in the remark attributed to President Franklin D. Roosevelt in Time magazine (November 15, 1948) concerning the Nicaraguan dictator Anastasio Somoza: “Somoza may be a sonofabitch, but he is our sonofabitch.”
The client dictator wants the patron’s unconditional support. The patron may be willing to support the client, but may want the client to adopt certain reforms. However, sensing that these might not be welcome and would therefore damage the bilateral relationship, the patron may seek indirect ways of influencing the outcome.
Let me give two examples from Egypt’s experience of this complex relationship and the political-economy outcomes to which they led.
At the height of the January 1977 bread riots in Cairo, I had a discussion with Hermann Eilts, the U.S. ambassador to Egypt, who was the best-informed diplomat I have met in Egypt.21 He urged the World Bank to press Egypt on subsidy and other reforms, because Egypt desperately needed such reforms. He suggested that the World Bank make the disbursement of the Bank’s loans conditional on actions on subsidies and the budget. I answered that the World Bank was disbursing only $60 million while the United States was disbursing about $600 million. Would the United States hold back even a penny of this amount if Egypt did not go in for the recommended reforms?
The ambassador responded that the United States believed President Sadat to be a force for moderation in the Middle East, and that so long as he continued to be such a force he merited the United States’ support. Translation: So long as Egypt adhered to its peace treaty with Israel and refrained from creating any nuisance that would interfere with the West’s access to Middle East oil, it would get the money no matter what it did or failed to do in the way of economic reform.
I replied that the laws of physics did not permit the tail to wag the dog, and neither did the laws of arithmetic suggest that a hint to hold back some part of $60 million would terrify the Egyptians into taking the recommended actions, especially as they knew that at least $600 million would be available and that the United States was pressing the G-7 and other countries to join the aid program for Egypt in order to increase the total amount. (The first Consultative Group for Egypt, consisting of about twenty-five aid donors, in fact met later that year and pledged $3.4 billion in aid for the coming year.) I could not therefore in good conscience recommend to the World Bank’s management to join the IMF with any hints to withhold disbursements, particularly as Egypt had been fulfilling its contractual commitments on the World Bank’s projects. After some further discussion, Ambassador Eilts accepted my position.22
Thus, on the one hand the United States agreed that the policies proposed by the international financial institutions (IFIs) were necessary to deal with Egypt’s economic predicament. On the other hand, publicly agreeing with these institutions might harm the United States’ bilateral relationship with Egypt. The solution seemed to be to urge the IFIs from behind the scenes to press Egypt on reform while publicly remaining “understanding” of the country’s difficulties.
The Egyptians sensed the Americans’ dilemma, and were quite prepared to take advantage of it. Ministers said that the cabinet would trumpet the “understanding” statements in order to glue the United States to its public posture. The Americans understood that abandoning a position that Egyptians applauded as being sympathetic would drain much of the popularity that the United States had garnered because of its (well-publicized) helpful stance. The political costs of a retreat would be too great.
The presence of the patron also enabled Egypt to play the “American card” in its dealings with the IFIs, in which the United States was the principal shareholder. Several examples of Egypt’s co-opting the United States to pressure the IMF are documented by Richards (1991) and in various issues of the Middle East Economic Digest.23 Some instances are also described in later chapters of this book.
A telling example is provided by the experience of the Consultative Group of aid donors for 1979. In September of that year it appeared that the World Bank was reluctant to hold a meeting of the Consultative Group for Egypt. I was invited to join a discussion between Hamed al-Sayeh (the minister of economy) and the United States ambassador (Alfred Atherton) at which the minister asked the ambassador to have Robert