Egypt Faces Up to Radical Reform

AUSTERITY AND POLITICS

AN economic crisis that will get much worse before it gets better is forcing Egypt to face up to radical change. But as the government prepares to sign a reform package with the International Monetary Fund, many observers say that essential change may lead to political instability.

The IMF is urging Egypt to cut its $5 billion budgetary deficit and a $7.5 billion trade deficit by a program of public-spending cuts, increased interest rates, and devaluation.

In a parallel series of negotiations for about $750 million in balance of payments' support, the World Bank is pressing Egypt to sell off its large state-controlled heavy industries, abolish price controls to allow farmers to get full value for agricultural products, and cut large consumer subsidies on electricity and gasoline.

In a country where inflation is running at more than 20 percent a year, however, the new package will bring a further sharp rise in the cost of living.

And critics say that the burden will fall disproportionately on the poor.

``It will be horrendous,'' says Khaled Sherif of the American University in Cairo, a former economic adviser to the government. ``There's no way the government can just let that happen.''

With no economic growth and a high rate of population increase, Egypt already has a large pool of unemployed and is dangerously dependent upon imported foodstuffs.

But the changes are already under way. The prices of virtually all commodities, from bread to electricity, have started to climb, and much bigger price rises loom.

Despite considerable domestic resistance to the IMF's proposals, Egypt is expected to come to terms with the Fund by the end of May. This will allow the country immediately to go to the Paris Club of Western creditor nations to negotiate repayment of up to $10 billion of external debt, and to benefit from long-denied commercial credit.

Egypt has been desperately short of foreign exchange and commercial credit has all but dried up.

But while radical economic reform risks political unrest that might imperil President Hosni Mubarak's secular and pro-Western government, analysts say failure to carry out both economic and political reforms may hold the same threat.

Failure to tackle a number of economic problems, ranging from a massive $50 billion external debt to underfunded health and welfare services, such as housing and education, could tilt the domestic political balance in favor of the Islamic opposition, such as the Muslim Brotherhood.

Nominally illegal, the Muslim Brotherhood is nevertheless a force to be reckoned with. It dominates a number of trade unions, professional syndicates, and university student bodies.

And in the 1987 elections, members of the Muslim Brotherhood became the largest opposition grouping in parliament, despite the group's illegal status. The brotherhood is also very influential in poor urban areas.

Many political commentators suggest that a more open political system and a greater role for the parliamentary opposition will be needed to bring about reform.

``This regime, in its present form and structure, cannot face the consequences of economic reform,'' says Ali el-Din Hilal Dessouki of Cairo University. ``It must introduce new policies and go in for some serious image-building.''

Dr. Dessouki says that members of the government must show that they are sharing the burdens and hardships now being placed on the shoulders of ordinary people.

Although few observers doubt the government's will to reform, many doubt its ability and capacity to change.

There is bureaucratic resistance, and civil servants whose livelihoods are threatened by big spending cuts have a vested interest in maintaining the status quo.

Some political analysts say they wonder whether the government has the political credibility to push its reforms through.

Many admire President Mubarak for his low-key approach to politics - a welcome contrast to the superstar performances of his immediate predecessors.

But Mubarak lacks the force of personality to mobilize popular opinion behind the changes, his critics say, and has left the political initiative to the Islamic opposition, particularly the Muslim Brotherhood.

Many analysts say that the government is mistaken in maintaining the ban on the movement. Legalizing it and allowing it to operate freely, they say, would expose what they regard as the Brotherhood's political bankruptcy.

``They have nothing to say about growth, housing, or education,'' says a professor at Cairo University. But as long as the government itself fails to come to grips with the contry's problems, critics say, support for the Islamic movement is likely to grow.