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BW Businessworld

Transition Holds The Key

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The eighteen days in Egypt that shook the world will be known in history for passion, dignity and extraordinary restraints on the part of her both ordinary citizens and armed forces. Unlike the Soviet revolution in the last century which sowed the seeds of violence right from its inception, events in Egypt stand in stark contrast with its force of non violent ideals and is almost sure to inspire many uprisings in other parts of world placed in similar situations.

However, this victory for the freedom seekers in Egypt could be short lived if the process of transition towards the establishment of a fully fledged democratic system is left incomplete. The completion of the unfinished task requires changes in the mindset of US policymakers and overhaul of Egypt's internal political structure simultaneously and within a short period.  If the job is undone or done in a half-hearted manner, not only Egypt will be in limbo but its repercussions will be felt throughout the Middle East and beyond in the emerging countries.

The enormity of the whole task in the forthcoming days originates from a number of important factors. First, the interwoven connections between economics, politics and religion of the most indispensible commodity in the world known as oil placed the whole problem on a sticky path. Though not a major oil producing country, Egypt controls a huge part of the waterways and trade due to its strategic location near the Suez canal. This important waterway connects the Mediterranean and Red sea over which the merchant ships navigate between Europe and Asia. Almost, 2 million barrels of oil and 4 per cent of the world crude oil output and 14 per cent of the global liquefied oil move through this route. Second, the importance of Egypt's role in the geopolitics of the region can hardly be exaggerated. Though it had fought wars with Israel off and on but it is also the only Arab country to have signed peace treaty with her and very often it acts as a political negotiator between Israel and various enemies in the region and thus has been an important ally of US for the last three decades.

Third, the possible contagion effects that can erupt sporadically in parts of Middle East and North Africa and Iran and destabilise the economies beyond geographical boundaries of the Arab world at least in the medium term. However grand lip service the Western political world offers to freedom, it is an unpalatable fact that in the globalized financial market, there is no ‘'democracy premium'' for financial assets issued by the emerging markets. In the first two weeks of the Egyptian upheaval, £3 billion has been withdrawn so far from mutual funds of the other emerging markets, which were not directly linked to upheaval. In addition, the extra yield on sovereign bonds has already started moving up and so were the costs of insuring sovereign bonds, sparking the fear of capital flight from the emerging markets in Middle East and elsewhere. Finally, soaring oil prices (already crossed $100 a barrel without much signs for subsiding) together with food, commodity and resource prices inflation would create unrest in the economies that have no connection with this region.

To avoid instability originated from this region and spill-over effects outside, it is a must that both external conditions in the region and current internal structure of Egypt must undergo sea changes. Among the key factors external to the region which should change immediately is the long-standing US policy of appeasement towards all forms of Middle East dictators. The giant superpower had developed a tripartite arrangement over the years in this region along the following lines: The country would extend political, economic and military support to ruling regimes and in exchange the latter would ensure uninterrupted extraction, supplies and marketing of oil and natural gas and also would remain neutral in conflicts with Israel.  This dual and symbiotic relationship so far had worked well in the region until last month. All oil rich Arabian countries thus have so far unfettered autocracy together with market oriented oil policy and are also major beneficiaries of US aid.  The Egyptian army used to receive $1.5 billion annual sum from the US in exchange for a promise to honour its commitments towards its donor. Saudi Arabia, Bahrain, Kuwait, Oman, Algeria and their oil rich cohorts exhibited the same patterns all over. The various regimes of dictatorships either in the form of monarchy or via army flourished by trampling voices of opposition but in exchange offered economic concessions towards the poorest in the form of price control, export restrictions and various subsidies which are normally financed via a combination oil revenues and US aid.

This symbiotic relationship was apparent from the conflicting stands that US adopted all throughout the Egyptian crisis. It is crystal clear that such a ‘'settlement'' with the dictators can bring stability for only a temporary period unless the regime is truly benevolent towards its subjects. Hence, the time is ripe for a changed US policy that would delicately balance between her interests on oil and Israel with those of rising aspirations of ordinary citizens of these countries which so far has received no priority from any US President. True, the current administration, towards the end, took a tougher stand against the autocratic regime but it did not emerge as a well thought-out policy but was a clever response to situations that grew out of hands.

On the internal side, a great deal of transformation must occur inside Egypt that might usher a democratic set up in the fall when election is due. Of course, this is much easier said than done. There is no automatic switch that would trigger such a smooth transition.  In order to succeed, the process requires development and nurturing of legal (court), political (free and fair election), civic (a secular and impartial constitution ensuring freedom of speech) and economic (independent central bank) institutions that would act as checks and balances to curb the rise of extra constitutional power in the future.  Hence, any process of transition of power that would write new constitution should combine a pluralistic team consisting of historians, legal scholars and economists along with the representative political parties, under the supervision of the credible army personnel. The balance is delicate. More power to scholars or political parties may lead to further indecisiveness or giving birth of a dominant extremist group hijacking the basic agenda and on the other hand too much power to army in the process of transition would defeat the very purpose of creating a free Egypt.

The task of creating a superstructure for building up of a successful democracy from an autocracy   is colossal for other endemic intrinsic factors. A big casualty of any form of dictatorship is the systematic destruction of institutions as appointments at all levels are made on the basis of unflinching loyalty to the regime and without any consideration towards meritocracy or competition or both.  And Egypt is no exception. Due to uninterrupted power, the army had all pervasive economic interests ranging from farms, real estate to army supplies. It is one thing to dislodge an old dictator but it is a completely different ballgame to initiate a process that would ensure both economic and political institutions at the expense of military's strong economic interests scattered all over the country.

Thus, it is true that the future of the transition process does not look very smooth from today's point of view, but achievement of such a goal is not completely utopian other. It had happened in Turkey where the army is still today a guardian of secularism and democracy. The most shining ray of hope in current Egypt is her educated middle class who can solidify the process through participation in a future democratic set up. But will it finally happen in the country? Come September and we will know more on this.

The writer teaches at Essex Business School. 


He can be reached at sbanerji(at)essex(dot)ac(dot)uk