A New Chapter in Egypt's Power Struggle

Submitted by Pater Tenebrarum of Acting-Man blog,

Muslim Brotherhood Designated a Terrorist Organization

It has become quite a steep fall from grace. Within 18 months, Egypt's Muslim Brotherhood has moved all the way from winning the presidency and ruling the country to once again becoming outlawed. During the Christmas holidays the military council currently administering Egypt saw fit to declare the Brotherhood a 'terrorist organization'. Anyone taking part in demonstrations on behalf of the Brotherhood or otherwise supporting it henceforth faces a minimum of five years imprisonment. Its leaders face imprisonment for life, and perhaps even the death penalty. This includes former president Mohammed Morsi.

The pretext used for the promulgation was an attack on a police station (the Daqahliya Security Directorate in Mansoura) that killed 16 policemen and left an estimated 140 people injured. However, a different organization actually claimed responsibility for the attack, namely the Sinai-based radical Islamist militant group Ansar Beit al-Maqdis. In August the Egyptian army let it be known that the group had been 'dealt with', so we are evidently looking at a case of miraculous resurrection here (it's either that, or the army wasn't entirely truthful). Reuters reports on the outlawing of the Brotherhood:

“The Egyptian government intensified its crackdown on the Muslim Brotherhood on Wednesday, formally listing the group as a terrorist organization after accusing it of carrying out a suicide bomb attack on a police station that killed 16 people. The move marked a major escalation in the army-backed government's campaign to suppress the Islamist movement that propelled Mohamed Mursi to the presidency 18 months ago but has been driven underground since the army toppled him in July. It gives the authorities the power to charge any member of the Brotherhood with belonging to a terrorist group, as well as anyone who finances the group or promotes it "verbally, or in writing".

"This is a turning point in the confrontation. This is an important tool for the government to close any door in the face of the Brotherhood's return to political life," said Khalil al-Anani, a Washington-based expert on the movement. The Brotherhood condemned the attack on Tuesday in the Nile Delta city of Mansoura, north of Cairo. Earlier on Wednesday, a Sinai-based militant group, Ansar Bayt al-Maqdis, had claimed responsibility for the attack that wounded some 140 people.

In Washington, the State Department also condemned the attack but urged Egypt to have an "inclusive political process." "We condemn in the strongest terms the horrific, terrorist bombing yesterday. There can be no place for such violence. The Egyptian people deserve peace and calm," State Department spokeswoman Jen Psaki said but added: "We also note that the Muslim Brotherhood in Egypt condemned the bombing shortly after it occurred yesterday. We are concerned about the current atmosphere and its potential effects on a democratic transition in Egypt," she added.

The Brotherhood, which estimates its membership at up to a million people, was Egypt's best organized political force until this summer's crackdown. A political and social movement founded in 1928, it won five elections after the downfall of President Hosni Mubarak in 2011.

"The government decision aims to liquidate its political opponents," Mohamed Touson, a member of the Brotherhood's Freedom and Justice Party, told Al-Ahram online, a state-run news portal. Since Mursi's overthrow, the state has killed hundreds of his supporters in the streets and arrested thousands more. Mursi and other top Brotherhood leaders were last week charged with terrorism and plotting with foreign militants against Egypt. They could face the death penalty. A court ruling has also formally outlawed the group.”

(emphasis added)

This means that the Muslim Brotherhood returns to the state in which it has found itself for the bulk of its history: an outlawed organization operating in the underground. Its supporters will be jailed (and quite likely tortured), so in this respect the difference between Mubarak era Egypt and post Mubarak era Egypt has now been reduced to precisely zero. Many believe (and they may well be right) that Ansar Beit Al-Maqdis is loosely affiliated with the Brotherhood, a kind of self-anointed military arm of the organization, as the group's attacks on Egyptian security forces have reportedly vastly increased after Morsi was deposed by the army. However, as always in such cases, it is impossible for outsiders to actually know the truth. Who is who in the zoo in the murky world inhabited by these terrorist splinter groups cannot be discerned from afar. Whether it truly was an attack perpetrated by a group close to the Brotherhood, or perhaps even a 'false flag' operation to give the ruling junta the opportunity to take the step of banning the Brotherhood we will never really know.

The situation once again underscores the fundamental problem the West faces with regard to supporting the introduction of Western-style democracy in Middle Eastern countries. Since the Brotherhood has been the main force of organized resistance during Mubarak's dictatorship, it tends to win elections. This latter fact explains the rather lukewarm reaction of the US state department to its outlawing. Now that it has been officially declared a terrorist organization, it can obviously no longer win any elections, which removes a big headache. However, an even bigger headache may be the result.

< span style="font-family: verdana,geneva,sans-serif;">How Stable is Egypt?

It needs to be interjected here that the biggest problem facing the Arab world is not a lack of democracy, but a lack of freedom and an associated lack of capitalism, a point we have discussed in detail before (see “How the Arab Winter Could Become a Spring”). The army is said to control 40% of Egypt's economy and it doesn't take a big leap of the imagination to realize that it has very strong economic incentives to want to cling to power. However, the Brotherhood certainly hasn't shown any ability to deal with Egypt's economic problems either. Morsi faced increasingly violent protests against his rule precisely because he failed in this respect. In fact, his rule appeared in many ways not much different from Mubarak's – he seemed to simply take over the same apparatus of oppression that existed before so as to use it for his own ends. Moreover, the Muslim Brotherhood does of course have an agenda inspired by religious dogma and wanted to use its control of the government to impose its views of proper morals by legislative fiat, running roughshod over its opposition in the process.

Unfortunately the latest escalation of the power struggle between the military and the Muslim Brotherhood may have the effect of destabilizing Egypt and with it the entire region even further. While there can be little doubt that the army has all the firepower it needs to remain in power, the Brotherhood is unlikely to just slink away quietly now that it has tasted freedom and political power. Reuters continues:

“Since Mursi's downfall, at least 350 members of the security forces have been killed in bombings and shootings. The government has declared itself in "a war on terror". Analysts say the government decision points to the influence wielded by hawks in security services. Though it has been outlawed for most of its existence, this marks the first time the group has been formally designated a terrorist movement. In a statement, the government said: "All of Egypt … was terrified by the ugly crime that the Muslim Brotherhood group committed by blowing up the building of the Dakahlyia security directorate." The statement did not say what evidence the government had to back up the accusation or name any suspects.

Ansar Bayt al-Maqdis, meaning "Supporters of Jerusalem", has claimed responsibility for a number of the attacks since Mursi's downfall, including a failed bid to kill the interior minister in September. In its statement claiming responsibility for the Mansoura attack, Ansar Bayt al-Maqdis blamed the army-backed government for fighting "Islamic legitimacy" and spilling the blood of "oppressed Muslims".

The government is pushing ahead with a political transition plan. A mid-January referendum is the next step, to be followed by parliamentary polls and a presidential election. Army chief Abdel Fattah al-Sisi is widely tipped to win, assuming he runs. The Brotherhood says it remains committed to peacefully resisting what it calls a bloody military coup against a freely elected leader. Its supporters are pressing a campaign of protest focused on university campuses. Anani said: "The only party that will benefit from this is the radical Islamists who will capitalize on the despair and disenchantment."

Some observers have drawn parallels with Algeria, where a civil war erupted in 1991 when the army aborted an experiment with democracy because the Islamists looked set to win. "We might witness another insurgency, an Algeria scenario. You might see the emergence of a violent faction in the Brotherhood," Anani said.”

(emphasis added)

We don't know whether the 'Algerian scenario' will indeed repeat in Egypt. Actually, we think the chances are quite good that it won't, but while the probability is smaller, the ramifications would be larger. In any case, one must agree with Mr. Anani's assessment that radical Islamists are bound to benefit the most from the decision. With their political aspirations once again quashed, many of the more moderate members of the movement will be open to radicalization (as to how such things happen, see our recent article on Nelson Mandela and the formation of Umkontho we Sizwe). Even if Egypt is not likely to experience outright civil war, it seems highly probable that attacks like the one that was used as the pretext for outlawing the Brotherhood will continue to proliferate and escalate.

Financial Markets and the Economy

Egypt's stock market is still marching higher, continuing the uptrend that began when it became increasingly obvious that Morsi's rule was likely to be cut short. However, given the huge decline in the exchange rate of the Egyptian pound (which has yet to show any signs of reversing), it is possible that the stock market simply reflects the effects of the underlying monetary inflation – in other words, people are quite likely buying stocks in an attempt to preserve the purchasing power of their savings rather than due to hopes for an economic upswing. After all, stocks have been on a tear in Venezuela as well, even as the country is increasingly plagued by shortages of basic consumer goods as a result of the mismanagement of the economy by the socialist government. Monetary inflation spiraling out of control is clearly the culprit in this case. It should be pointed out in this context that Egyptian stock prices began to rise from their lows in late 2012/early 2013 just as the country's currency began its free-fall.

Egypt's EGX 30 stock index over the past decade (weekly candles) – click to enlarge.

A close-up of the action over the past three years. In mid 2013 there was a brief spike lower when the army's coup that deposed Morsi took place. However, the currency failed to recover and stocks quickly found buyers again – click to enlarge.

A weekly chart of the Egyptian pound vs. the US dollar. At its 2008 high, the currency traded at slightly below 5,30 pounds to the dollar. The free-fall started in the final two trading days of 2012, after about three weeks of violent confrontations between supporters and opponents of former president Morsi in the streets of Cairo. When Morsi was deposed by the army, it briefly spiked above the level of 7.10, then recovered slightly and has since then moved sideways near the 6.90 level. It is noteworthy that the currency has been unable to recover the losses it suffered in the wake of the protests against Morsi – click to enlarge.

To summarize, it is not possible to conclude that the relatively firm stock market signals that everything will turn out just fine and that Egypt will return to a state resembling 'business as usual' (i.e., a version of Mubarak's rule, with relatively little disturbance). It could well be that the stock market is simply anticipating further declines in the pound. Looking at other major crosses, the Egyptian pound is already plumbing new lows against the euro, which is currently the strongest major currency. The ups and downs of Egypt's stock market actually seem to follow the EGP-EUR cross more closely than the EGP-USD rate. This likely reflects the fact that the EU is Egypt's largest trading partner by far. Overall, Egyptian trade has vastly declined over the past two years – trade with the US and the EU has essentially been cut in half. The disaggregated statistics can be downloaded here: Egyptian trade with the US (pdf) and Egyptian trade with the EU (pdf).

While almost every category of exports and imports has been hit hard, we would draw attention specifically to the collapse in imports of capital goods, foodstuffs and agricultural products ex cotton. The former is testament to the miserable situation Egyptian industry is facing, while the latter indicates that the supply of basic consumer goods like food remains severely restricted. That is important because soaring food prices and a declining food supply were major factors in destabilizing first Mubarak's and then Morsi's government. The military administration led by general Abdel Fattah al-Sisi will sooner or later face the same problem if the population's provision with food cannot be improved.

Egyptian pounds per euro – against the common currency of euro-land, the pound has already declined to new lows – click to enlarge.

Conclusion:

Much of the Arab world remains in upheaval in the wake of the so-called 'Arab Spring'. Egypt has always been considered a pivotal Arab state – it is both the most populous as well as located in a strategically important spot. When the army deposed Morsi, it presumably hoped to get the wave of protests and clashes in the streets under control. Hardliners in the military junta saw a chance to suppress the Muslim Brotherhood once and for all and decided on a brutal crackdown when the protests failed to cease (for details on how they played both US and European diplomats, see this NYT article from August). However, violence has increased even further, with street protests continuing and leading to even more bloodshed and Islamist militants stepping up their attacks as well. The latest escalation clearly shows that the hardliners remain firmly in control in Al-Sisi's government, and it is yet another dangerous gamble. The calculation seems to be that restoring the status quo ante by pushing the Brotherhood back into the underground where it was during Mubarak's regime and jailing and/or executing its leaders, something like the deceptive calm of Mubarak's era will eventually return. That may turn out to be yet another miscalculation. Too many in Egypt feel they have little to lose and it is well known from historical examples that creating martyrs isn't likely to stop a movement that enjoys fairly broad popular support.