Monday, June 06, 2011

Egypt: Look to the economic example of Poland

Solid analysis: Foreign Policy
Egypt and Tunisia, like Poland and Russia, need to deregulate state-run economies and open up protected markets. Both have powerful stakeholder classes who will resist reform: "It was the nomenklatura in Eastern Europe," Lipton says, "and in Egypt it's people connected to the political leadership and the military." And so the question is: Will what worked in Eastern Europe work in the Middle East?
Lipton observes that even Poland took almost 15 years to join the European Union, but the prospect of membership meant that any political party that proposed to deviate from the path to European integration lost in the polls. He concedes that "in the case of North Africa, we will find nothing that is as compelling as EU membership," but says that policymakers hope to build a "staircase" toward reform starting with the quick infusion of IMF money, then moving on to increased trade and investment, and help with legal changes to unshackle the private sector and improve revenue collection. ...

The World Bank has begun working out such conditions in both target countries. In Tunisia, says a bank official, the interim government has embraced the plan: "They've tried to identify changes that would be difficult to reverse and that would give clear signals that policymaking will be different," she says. These include freedom-of-information rules and public access to government data. Egypt, she concedes, has been "harder."

Indeed, Egypt's interim military government may put up serious resistance to the Deauville Partnership. The Supreme Council of the Armed Forces, as the ruling clique calls itself, has proved increasingly hostile to the citizens movement that ousted President Hosni Mubarak from office in February. Even if the military agrees to surrender political power to a new civilian government, which seems less and less certain, it may do so only on the condition that it retain its vast -- and disabling -- web of economic privileges. "We must not allow the Egyptian military to control the economy or to retain power through privatization," says Anders ├ůslund, a former Swedish diplomat who worked with Lipton in the early 1990s. The "a priori answer" to whether the military will agree to surrender its economic role, ├ůslund says, is "no."

The premise of the plan is that the combination of political change and economic opening will produce a dynamic that ultimately forces Egypt's own nomenklatura to abandon its privileged position. ...

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