Egypt: Morsi’s second U-turn in two days
“Like a train without a driver” is how one commentator described Egypt after President Mohamed Morsi’s latest policy U-turn, scrapping a planned increase in taxation. In a different vein, one joke doing the rounds in Cairo has doctors telling Morsi that, like a pregnant woman at risk of miscarriage, he should lie down for a few weeks to let his decisions take hold.
But there is a grimness to the humour. Stocks and the currency fell on Monday as the air of uncertainty became pervasive. With government supporters and the opposition preparing fresh rallies before Saturday’s controversial referendum on a new constitution, the danger of further violent unrest is rising.
The Egyptian pound fell to a new low of 6.144 against the US dollar and the EGX 30 equity index closed down 1.5 per cent on Monday. That reversed part of the 4.4 per cent jump in equity prices on Sunday, after Morsi reversed a decree giving him extraordinary powers which sparked the latest wave of protests.
Nevertheless, the opposition National Salvation Front told Bloomberg holding the referendum reflected “the recklessness and blatant lack of responsibility of a regime that risks pushing the country toward violent confrontations“.
While deciding not to increase taxes after all will appeal to voters, it has done nothing to improve Egypt’s climate of worsening instability and puts at risk a crucial $4.8bn loan from the International Monetary Fund, expected to unlock an additional $9.7bn from other sources. The planned tax increases would have contributed to reducing Egypt’s 11 per cent budget deficit in line with commitments to secure the IMF funding.
Meanwhile, Saturday’s referendum risks causing greater polarisation. Islamist commentators who back the president are telling supporters that a vote against the constitution is a vote against religion. Members of Morsi’s Muslim Brotherhood are briefing media on the threat posed by everyone from Christians to agents of Mossad, the Israeli secret service.
As the FT’s Heba Saleh told beyondbrics, Morsi is likely to win Saturaday’s vote.
“He has the support of a lot of the population and it’s highly likely he has a majority. And while the opposition leaders are a channel for those distrust the Islamists, they are not in control. If they tell people not to protest they will do it anyway.”
Why is the new constitution so controversial? As Saleh explains, it contains elements welcomed by many in opposition, such as an explicit ban on torture and other partial limits on presidential power. But it introduces a new definition of the “principles” of Islamic law – the main source of Egyptian legislation – that critics say is open to interpretation and would make room for “Islamisation by stealth”.
“Interpretations of Islam vary,” Saleh says. “People will tell you we are already Muslim, Islam is in our lives and we don’t need [the new constitution].”
The EGX 30 closed at 4,976 points on Monday, a 17 per cent fall from this year’s high of 5,969 points three months ago. That is still a big advance on its low early this year of 3,587 points. On balance, investor sentiment still looks to support a favourable outcome. But as Stefan Wagstyl wrote for beyondbrics on Sunday:
The IMF’s support is now crucial to help replenish reserves, launch economic reform and unlock access to even larger loans coming from other donors to make a total package of $14.5bn. The US seems ready to support the IMF going ahead, even in the current difficult conditions. But the conservative Gulf states, key deep-pocketed contributors, may be less than happy about financing a state in turmoil so close to their own borders.
FT
