Egypt's Crisis, America's Dilemma

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Egypt faces daunting challenges in the period immediately ahead. After several years of relative stability, both economic and political trends have turned ominous, as this largest and most important of Arab states presses against the outer limits of its resources. Negative developments in recent months affecting tourism, oil revenues and remittances from millions of expatriate workers in oil-rich Arab states have aggravated the tenuous situation. For President Hosni Mubarak’s government an economic crisis is almost inevitable in the near term, and a major political explosion only slightly less likely.

For the United States, impending events will put to a severe test the special relationship that has bound Egypt to this country since the mid-1970s, when the Camp David peace process began. Without careful and attentive management by both Congress and the Administration, this relationship could be entirely swept away, destroying in the process a keystone of U.S. diplomacy in the Middle East. Given the centrality of Egypt to the politics of the region, the consequences would seriously damage U.S. interests in the Arab-Israeli arena, North Africa and the Persian Gulf.

Overpopulated and resource-poor, Egypt has teetered on the brink of financial insolvency for decades. What makes the present situation particularly threatening? Why is America’s position so precarious, given the tremendous Egyptian dependence on U.S. aid, which this year alone will exceed $2.7 billion, and has totaled some $18 billion over the past decade? What steps can the United States take to better serve its interests?

II

Nowhere are politics and economics more intertwined than in present-day Egypt. Although heavy military spending and runaway population growth have compounded the country’s difficulties over the past 20 years, the day of reckoning has been staved off so far by sharp increases in foreign exchange revenues witnessed from 1975 to 1984. This was a windfall, resulting mainly from remittances of expatriate workers, capital inflows from oil-rich Arab neighbors, and Egypt’s own oil exports.

Over the past year each of these revenue sources has declined significantly, with no respite in sight. In addition, the recent upsurge of terrorism in the Mediterranean, and the American response, have hit the growing Egyptian tourist industry particularly hard. Overall, external revenues are expected to drop by nearly one-third from last year to this.