US Economic Aid in Egypt

Strategies for Democratisation and Reform in the Middle East

Dina Jadallah

• Publisher: I.B. Tauris
• Year: 2016
• Print ISBN: 9781784532550
• eBook ISBN: 9780857728913
• Edition: 1
• Topic: History
• Subtopic: Development Economics
• Index: History

Economic aid is one of the cornerstones of the Egyptian-American relationship, and plays a significant role in promoting US policy objectives in the Middle East. Focusing on the latter half of Hosni Mubarak's rule, Dina Jadallah argues that, through its aid policy, the US has attempted to use a reforming and democratising narrative to transform Egypt into a stable "market democracy" that would be aligned with US interests in the region. This aim has been pursued in conjunction with one that promoted a comprehensive "warm peace" with Israel. By highlighting the opposition within Egypt to US aid, Jadallah analyses the key issues that came to the fore during the 2010/11 protests in the country and led to the downfall of Mubarak. Extending her analysis into the post-revolutionary period, the author provides interviews with regime insiders and prominent critics, inside state institutions and outside, who actively challenged the regime. This enables her to assess the different perceptions of US aid both under Mubarak and in the current political situation, contributing to an incisive analysis of modern Egypt and its relations with its superpower ally in the region.

CHAPTER 1

CREATING THE MACRO-ENVIRONMENT FOR ‘STABILITY AND GROWTH’ THAT INTEGRATES A GLOBALISING ‘WARM PEACE’

Ya khofi ma yom el-nasr, terga‘ Sina’ w-trouh masr.¹

The real target in war is the mind of the enemy commander, not the bodies of his troops.²

United States aid furthered institutional and economic policy reforms that sought to position Egypt in consonance with US interests in the region. A strategy combining partnerships and privatisation was instrumental in effecting institutional and macro-economic changes which opened spaces for the integration of a warm peace with Israel (beyond the diplomatic and political levels) within the regime's reform and globalisation policies. The US aid framework achieved this integration by cultivating and relying on a parallel capitalist elite and a parallel officialdom within institutions in Egypt. Partnered allies served to direct the scope and nature of reforms in accordance with their vested interests and benefited from aid flows and the resultant transformations.

This aid strategy came at the cost of circumventing and superseding oppositional voices. While the strategy did succeed in producing significant alignment of state policies, it was potentially unstable. Some Egyptian critics assessed the institutional and economic transformations inspired by the new policies as contributing to the production of a subordinate path of development. They argued that such economic subordination serves to facilitate the US geostrategic aim of a comprehensive and warm peace. While normalisation of relations with Israel (tatbi‘) per se is a highly controversial issue in the Arab world, acceptance of the dominant vision as ‘common sense’ throughout Egyptian society was further disaffected by the contradictory effects that arose in the execution of the economic and strategic agendas.

The debate on aid

There is considerable debate concerning the function, role and effectiveness of foreign aid in affecting development, reforms and ideological and policy orientations. Some researchers, like Simone Dietrich,³ argue that if the quality of the recipient institutions is weak or corrupt, then ‘outcome-oriented donors’ choose to deliver aid to ‘alternative development partners’ in those states which, she claims, help development success. This argument assumes that outside donors have better insight into the quality of local ‘development partners’ and that the goals of donors and recipients coincide. The reality is that aid's ability to effect institutional transformations is mediated by a domestic political coalition.⁴ In Egypt, such selectivity regarding partners produced contrary economic (but less so geostrategic) effects. US aid filtered through elite interests, which meant that they could use their positions in power and their alliance networks to promote policies that privileged themselves and their transnational partners through the construction of joint interests.

Western-based assessments of economic reforms in Egypt have generally been positive. Anne Mariel Peters⁵ has lauded the ability of the Ahmed Nazif government to implement economic reforms. Peters’ perspective was echoed in statements made by the US foreign policy establishment.⁶ This outcome confirms David Bearce's findings that foreign aid is negatively correlated with democracy, because more authoritarian systems enable the more efficient passage of economic reforms.⁷

Consequently, from the viewpoint of various critics presented below, these reforms, which included an acceleration of privatisation, asymmetrically benefited the interests of big business, prominent members of which were appointed to the Nazif cabinet. The passage of these reforms and others during the Mubarak years was not subject to popular debate.

Allocations directed towards ‘democracy’ complemented economic efforts, both sets of which were filtered through elite interests. This partnered elite had access to (donor) funding to create new organisations that advocated policies and produced data and information supporting the ruling material and ideological worldview. Relying on Egyptian beneficiaries, US aid to Egypt was directed to produce piecemeal changes in multiple ministries and sectors. Smaller targeted types of interventions are seen as more efficacious than super-imposed mega-plans.⁸ These efforts were part and parcel of an envisioned structural overhaul – towards globalisation and warm peace – of the regime's economic policies. Nevertheless, in geopolitically important countries such as Egypt, where maintaining the stability of domestic political partners is desired, institutional and economic progress is frequently sacrificed and conditionalities are not imposed when dispensing aid.⁹ The fact remained that aid allocations targeting institutional and democratic reforms had an additional function to obtain the geostrategic aim of normalising relations with Israel.

The mechanisms that were used to implement the aid agenda were manipulated to benefit those who directed and helped author aid policies. For example, institutional safeguards, such as the transparency agenda, that are intended to safeguard against potential pitfalls associated with transitions to free markets may, according to political economist and global development specialist, Susanne Soederberg (2001), have contrary consequences. Soederberg argues that the IMF's transparency agenda is intended to promote economic stability (the status quo) by bolstering an ideological obligation to neoliberalism and progressing to legal obligations between states.¹⁰ Yet, contradictions are embedded within the rules of neoliberal ‘reform’.¹¹ These contradictions arise as a direct result of who formulates and implements the aid agenda and the processes by which it is implemented. While the economic transformations that were executed under the aid framework succeeded in incorporating Egypt into the global economy, the path of development was a subordinate one that granted windfalls to power holders but disaffected the rest. As this chapter will show, economic statistics, trade relations and divestitures in the public sector manifest the costs borne by many Egyptians from the country's geostrategic and economic incorporation into the American sphere.

Besides noting that economic aid to Egypt is tied to the Peace Treaty with Israel, typical disciplinary frames do not inquire as to the geostrategic function of US-supported economic reforms in Egypt. The underlying fact that US aid is intended to maintain geostrategic ‘stability’, which is defined as maintaining and deepening favourable Egyptian–Israeli relations, means that there is an essential reliance on, and narrow economic integration of, elite capitalist and ruling actors to promote that stability. As such, the over-riding goal of a warm peace ensures that dictatorial and amenable interests will be rewarded while opposing views will be marginalized. Consequently, the aid framework functions to promote elite and transnational capital accumulation (and power), much of which is achieved via state and policy restructuring.

The ties between the economic, geostrategic and ideological functions of aid were noted by anthropologist Suheir A. Morsy. In American Aid to Egypt: A Special Study for a General Politics, Morsy views aid as part of the changing face of imperialism, an American instrument for hegemony that opportunistically allies with Egyptians who are willing to economically ‘open’ Egypt.¹² According to her, these relations were greatly expanded after the Camp David Accords, after which aid was tied with Israeli interests, economic and cultural hegemony and autocratic legislation. There have been significant developments in the US–Egypt aid relationship since Morsy published her excellent work, especially concerning the expansion of privatisation as a policy tool to help normalise relations with Israel. Moreover, dialectical oppositions have developed over the years, with more critical discourses highlighting the specific negative economic effects of economic and other policy alignment of Egypt with the United States' globalisation and normalisation agendas.

Not all scholars of Egypt are as critical of the aid relationship and its consequences. Egyptian scholar Samer Soliman saw a positive aspect in the growing dependence of the regime on the capitalist class, arguing that it may spell trouble for the dictatorship.¹³ Soliman attributed this emergent alliance to the regime's failure to curtail its expenditures in response to declining revenues. Yet, his assumption that this alliance will lead to increasing pressures for democracy – oddly, through ‘private clientelism’¹⁴ – is debatable. Like Soliman, most scholars agree that the authoritarian conduct of the regime and the lack of checks on policy implementation are to blame for Egypt's development failure. However, many would question his assumption that capitalist allies of the regime would sponsor democracy and establish sustainable development. Instead of serving as a vehicle for democratisation, noted scholar Timothy Mitchell showed that the new alliances fostered new avenues for gaining economic advantage, thereby granting additional resources to the authoritarian regime and its capitalist allies, while impoverishing the rest.¹⁵

Consensus among the Egyptian intelligentsia (in addition to labour and others) about the best path to development and growth is elusive. While most support the idea of democracy as a solution to resolving economic failures, many emphasise that development and growth were relatively more equitable and successful under the (non-democratic) Nasserist government. The US reliance on a dictatorial regime (Mubarak's) to achieve its geostrategic and economic aims did not rectify the development and democracy problems in Egypt; instead, this arrangement gave rise to increasing contradictions.

The authoritarianism of the Mubarak regime precluded the option of manufacturing domination consensually via pluralist democratic procedures. Meanwhile, achieving consent on normalised relations with Israel was complicated by the reality that most of the populace considered Israel a threat.¹⁶ Therefore, alternative methods were needed to align Egypt with the US strategic vision and to build consent around pro-warm peace economic, strategic and societal transformations. US aid and its conditionality of a comprehensive peace were narratively rationalised as promoting a ‘market democracy’ and posited as the key for Egypt's developmental success. Meanwhile, the nature of the neoliberal reforms, and the actors and processes responsible for their execution, accumulated wealth in the hands of well-connected allies and those who were friendly to the idea of a warm peace. To counter the possibility that privatisation and economic reforms might risk political stability, changes in the elaboration of official economic statistics described below served to (ideologically) buttress regime policies.¹⁷

The democratising and reforming narrative that justified the US partnership strategy manufactured partial and segmented domination among an elite who leveraged their positions to author particular policies and institutional transformations that made available ‘private’ routes for alignment with US policy interests. In the case of the Egyptian Federation of Industries, amenable partners worked to institute the political, financial and legal mechanisms that would make Egypt hospitable to globalisation. Reforms opened up sectors of the State such as oil and natural gas for private profit, while simultaneously undermining the assumed cohesion of the State.¹⁸ However, these appropriated spaces, out of which alignment and normalisation would arise, could only supersede but not eliminate pre-existing as well as emergent oppositional viewpoints.

Even though the aid donor (United States) possessed powerful leverage, the assumption of top-down imposition of hegemonic ‘common sense’ was modified in practice.¹⁹ The Mubarak regime and business elite frequently took the initiative and set the tone, pace, scope and targets of reforms. For example, the Qualified Industrial Zones (QIZ) which are discussed in detail in Chapter 3, were created partly to comply with the aid condition of normalisation. Instead of pushing for a Free Trade Agreement that would affect all businesses equally, the QIZ asymmetrically benefited regime cronies who seized upon normalisation of trade with Israel as the key to obtaining preferential export arrangements to the United States for their own businesses. Thus, the establishment of QIZ and the economic exchanges therein gave rise to allegations of undue influence by a limited number of crony capitalists and proved politically-destabilising.

Normalisation added non-economic dimensions – concerning national stature and security – to oppositional discourse. The most resonant discursive critiques challenged the official narrative that market democracy requires normalisation as a prerequisite for Egypt's progress. Egyptian economists and writers who study the effects of aid, like Gouda ‘Abd el-Khalek, argued that despite reforms, a positive services trade balance and a high growth trend, structural problems with employment and poverty remain. He further argued that Egypt's export structure remains dependent on resource and low-tech exports. By contrast, the prior Nasserist policies had initiated massive industrialisation projects and established greater equity even if they failed to create a successful socialist economy and did not overcome entrenched centres of power.²⁰ These discourses highlighted the subordination (taba‘iyya) of Egypt which was perceived as being a direct result of aid.²¹ The discourses reflected the fact that most Egyptians became opposed to American aid.²² Oppositional economists viewed some of the reforms as part of a planned disassembly of the State (mantiq tafkik al-dawla): for example, Ahmed al-Sayyed al-Naggar, Head of Economic Research at Al-Ahram Center for Political and Strategic Studies, described this phenomenon as ‘the existence of a private public sector in some ministries’ – such as in the military industries.²³ In other ministries, the privatisation of institutional segments enabled some among the elite to advance a normalisation-friendly framework (that opened spaces for consumption). For instance, the aid-supported process of institutional twinning/structural consonance that will be explored below affected the Ministry of Petrol and the manner of accounting for oil exports. The new accounting enhanced the rationale for increasing oil sales to Israel, which had been an early stipulation since the signing of the Camp David Peace Agreement. The Peace Treaty had incorporated Israeli President Yitzhak Navon's requirement that oil sales in particular, and economic normalisation – a full peace – in general, would be compensation for the ‘loss’ of Sinai.²⁴ For oppositional economists like al-Naggar, the privatisation of these strategic secto...

Table of contents

• Front Cover
• Title
• Copyright
• Dedication
• Contents
• List of Tables
• Acknowledgements
• List of Abbreviations
• Introduction
• 1. Creating the Macro-Environment for ‘Stability and Growth’ that Integrates a Globalising ‘Warm Peace’
• 2. Privatisation and ‘Peace’ by Partner Allies: Alignment and Oppositional Critiques
• 3. Qualified Industrial Zones and Natural Gas: Remapping the Economy for ‘Warm Peace’
• 4. Discourses on Civil Society, Citizenship and Nationalism in the Emerging ‘Market Democracy’
• Conclusion
• Appendix
• Notes
• Bibliography