Buried in a news item in the Egypt Independent on prospective foreign aid for Egypt is the following eye-opener:

The government decided to lower subsidies on oil products from LE95.5 billion in the 2011-2012 budget to LE25.5 billion in the 2012-2013 budget by applying a coupon system on butane, gas and diesel in addition to other procedures for rationalizing energy consumption.

Cutting subsidies on oil products by nearly three-quarters through a coupon system puts the daily operations of the Egyptian economy directly into the hands of the state. To put the magnitude of this move in perspective: Egypt's 2009 oil consumption (the last year for which data are available) was 683,000 bls/day, or about $25 billion a year in current prices. The 95.5 billion Egyptian pound subsidy, equal to about $15.7 billion at the currnet exchange rate, covered three-fifths of the bill. Given that almost half of Egyptians live on less than $2 a day, that is not surprising. The Wall Street Journal reported March 22, "Subsidies already absorb at least 28% of Egypt's budget outlay of 476 billion Egyptian pounds ($79 billion). About two-thirds of that goes toward fuel and energy, with the rest aimed at reducing food prices, particularly for wheat."

Egypt has suffered from chronic fuel shortages since the overthrow of Hosni Mubarak early in 2011, including repeated breakdowns in electricity provision. The National reported Aug. 19,

A severe electricity blackout hitting many parts of Cairo shut down the Egyptian stock exchange and delayed trading for two hours. When the market finally opened, stocks fell in value by about US$164 million (Dh602.3m) in the early hours before regaining lost ground later. The exchange quickly moved to assure the market it would not happen again...Egypt runs one of the most inefficient subsidy systems in the world, where two thirds of the total subsidy bill of 150 billion Egyptian pounds (Dh90.69bn) goes on fuel. Much of that is used to keep natural gas below market prices. About 90 per cent of the country's electricity generating capacity is from natural gas. It is no surprise gas shortages affect the electricity supply in the hottest months of the year during peak demand.

It seems likely that the Morsi government will shift food subsidies to a ration card system as well, according to the Egypt Independent. Bread shortages appeared at the end of Ramadan in some Egyptian provinces, al-Ahram reports, and the Morsi government blames corruption by bakers:

Residents of the city of Desouk in the northwestern Nile Delta governorate of Kafr El-Sheikh have been suffering from a shortage of subsidised bread since the beginning of Eid on Sunday, according to the Al-Ahram Arabic news website.">Bakeries, which serve close to three million residents in the governorate, have not received their share of subsidised wheat and have therefore been unable to produce enough bread.

As a result, several bakeries in the city will be closed for the three-day Eid festival.

Burullus, Kafr El-Sheikh city and Riad in the same governorate are also experiencing bread shortages, with many residents complaining that what little bread they are able to buy is of poor quality. Fawzy Abdel-Aziz, undersecretary at the supply ministry, has said the problem is not due to a shortage of subsidised wheat, and has instead accused bakeries of illegally selling subsidised wheat on the black market.

The Morsi government will exploit the crisis to put access to basic necessities of life into the hands of a one-party state. I warned of this in an April 11, 2012 essay in Asia Times:

The Brotherhood believes that widespread hunger will strengthen its political position, and is probably correct to believe this. As the central government's corrupt and rickety system of subsidies collapses, local Islamist organizations will take control of food distribution and establish a virtual dictatorship on the streets. American analysts mistook the protestors of Tahrir Square for revolutionaries. The Muslim Brotherhood now reveals itself to be a revolutionary organization on the Leninist or Nazi model.

The Brotherhood's revolutionary program has been gestating for some time. As food and fuel shortages emerged in the first months of after the downfall of president Hosni Mubarak last year, Islamist organizations already began to fill the vacuum left by the breakdown of the old civil regime. The Ministry of Solidarity and Social Justice began forming "revolutionary committees" to mete out street justice to bakeries, propane dealers and street vendors who "charge more than the price prescribed by law", the Federation of Egyptian Radio and Television reported on May 3, 2011. According to the ministry, "Thugs are in control of bread and butane prices" and "people's committees" are required to stop them.

With nearly half its population dependent on subsidies for necessities, an effective unemployment rate of 40%, and a 45% effective illiteracy rate, Egypt is one of the least-prepared nations of the world for parliamentary democracy. The state rationing system now in preparation will make the local Muslim Brotherhood office the arbiter of whether families eat or starve. There is no more powerful form of social control. It is not necessarily the case that the Morsi government will follow the guidelines of the Brotherhood's sage Sayyid Qutb, whose tract Social Justice in Islam argues for an Islamist-tinged sort of socialism, but the logic of circumstances are pushing them towards this kind of model.

The irony here is that the Muslim Brotherhood may construct a totalitarian state with the help of the International Monetary Fund, including American money. Al-Ahram reports,

International Monetary Fund (IMF) chief Christine Lagarde will visit Egypt on 22 August, according to an IMF statement on Wednesday. Lagarde's visit will focus on the $3.2 billion loan that Egypt has been asking for since March 2011. No deal has been reached and Egypt's funding problems have steadily worsened during subsequent 18 months of political turmoil. Reuters reported on Wednesday that Egypt would discuss the possibility of a bigger-than-expected $4.8 billion loan from the Washington-based body.

How much financial aid Egypt will receive remains unclear. What is crystal clear is that the Muslim Brotherhood is using economic misery to entrench its power.

Related Topics:  David P. Goldman receive the latest by email: subscribe to the free gatestone institute mailing list

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